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PaperclipPerfector
1d ago
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Be advised: this thread is not for serious in-depth discussion of weighty topics (we have a link for that), this thread is not for anything Culture War related. This thread is for Fun. You got jokes? Share 'em. You got silly questions? Ask 'em.
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I worked as a title attorney for a decade. It's not a scam. Most of what you're paying for isn't to theoretically pay off future claims, but to pay for work done up front to prevent future claims. This requires them to send someone down to the courthouse to gather all of the title documents, which are than sent to an attorney who looks for issues and drafts a list of exceptions that the policy won't cover. If the exceptions are minor things like utility easements and the like that don't really affect the value of the property, the company will write the policy. About a third of the time, though, there are major issues that require the insurance company to do further curative work before they'll move forward. The reason such a small percentage goes toward paying out claims is because the vast, vast majority of your premium is spent on getting assurance that there won't be any claims.
Now, theoretically you could forgo the insurance and research the title on your own, but this will inevitable cost you more than just getting the damn insurance because you're now paying the full hourly rate for an attorney who may or may not have any significant experience doing title work, whereas the insurance company has an attorney on its payroll for a lot less, and this guy does nothing but titles. And they'll also be able to delegate a lot of the legwork to other staff, who also do nothing but titles. So you're paying less for a superior product. Theoretically you could also do the research yourself but I highly, highly would not recommend even thinking about even attempting this. Even having spent ten years doing titles that were much more complex than typical residential real estate transactions, there's no way in hell I wouldn't buy title insurance. I've seen too much.
The problem there is that we would have to essentially run a full title for all land going back to patent. Most title insurance companies only do a 60 year search, because claims beyond that are rare enough that occasionally having to pay one isn't a big deal. But it becomes important if you're making ironclad assurances. You could theoretically get around this by passing a marketable title that acts as an effective statute of limitations on claims, but you stil don't avoid the basic problem: It would still be really expensive. How long and how much do you think it would cost to run full title on all 585,000 parcels in Allegheny County? You're probably talking billions, when you consider that a lot of these are going to be industrial and commercial properties that have much more complex titles than a simple residential subdivision lot. Rural counties have fewer parcels, but rural work poses its own problems; those titles are almost never easy. Then there are the associated costs of curing all those titles (a buyer can always walk away), developing and implementing the system, and dealing with the inevitable lawsuits that follow. I did a lot of work in Ohio right when oil and gas was starting to take off. The state had passed a dormant mineral act that sought to simplify things: Rather than having to track down the innumerable hard-to-find heirs of someone who severed a mineral interest in 1919 and then forgot about it, any interest that hadn't seen any action within the past 20 years would merge with the surface. Seems simple enough on its face. This led to a decade of wrangling and counting, with the Ohio Supreme Court getting involved on several occasions, to determine when an interest is actually terminated. We basically had to hold off on interpreting it for a while while the cases worked their way through the courts. I doubt the wholesale termination of old surface interests would be that much different.
I hate being "let me explain how to fix this industry which I know nothing about" but this is themotte so here goes.
Why, instead of doing all that work, doesn't a title insurer simply collect the payment and not do any work? If the current claims payout is 5%, maybe now it goes to 10%. Complicated mineral claims? Pschaw. I'll only do title insurance for houses and apartments.
I wouldn't rule out that a lot of insurers are stupid and lazy and this is their basic process anyway.
Presumably you don't built the registry from scratch. Just every time someone "runs title" it goes into the database and the next time someone runs title it just pulls the record for a flat fee of $50 or something. That said, I do acknowledge that the government fucks everything up so it probably would be some horrible boondoggle.
Because doing the legwork means the insurance is significantly cheaper than other forms of insurance in proportion to the total benefit. If I get the 15/30 minimum liability coverage in PA, it's probably going to cost about $800/year. $800 for a max payout of $30,000 means I'm paying 2.6% for one year of protection. On the other hand, the cost of title insurance on a $300,000 house is going to run about $1,500, so I'm paying 0.5% for protection as long as I own the home. If policyholders were paying $7,500 annually for title insurance, it might make sense to forgo the examination, because you'd then be able to absorb huge losses.
There's also the moral hazard issue where people don't attempt any funny stuff when they know they aren't going to get away with it, because there will always be a title search. Say I own a house that I'm offering for sale for $300,000, but I still have a mortgage that I owe $200,000 on. I list the property with a real estate agent, and Bob agrees to buy the home for the listed sale price. Bob's lender asks you to write a policy for their loan amount, and Bob purchases his share, and you write a policy for the full $300,000. At closing, the bank cuts me a check for the full purchase price, and I deposit it in my bank. After that, I stop paying on my existing mortgage, the bank forecloses and kicks Bob out of the house, and both Bob and the bank file claims for the full $300,000.
This lien isn't the kind of thing that's normally even a problem for title insurers; we'd just note it in the report so the closing attorney knows that the mortgage has to be satisfied to resolve it. But it's a serious risk if you don't even know about it.
Title insurance is mostly for homes and apartments, though commercial properties are insured as well. I did mineral work mostly and I've never heard of anyone insuring a mineral interest.
The issue with doing that is that the company running the title isn't trying to uncover or resolve every possible claim against the property, only the ones that are likely to become problematic from a business perspective. It's essentially a cost-benefit analysis. If the government is guaranteeing title, however, it has to be ironclad. Due process requires notice and opportunity to be heard, which means that a more extensive search needs to be done, and all interest-holders have to be notified and able to present their case. I talk about this more in the post below, but what this means is that a complicated quiet title action needs to be performed so a court can make a determination of who owns what. Several states had this process for a while, but it proved too cumbersome to become popular. The countries that have it now started it when most of the land was unseated, and the system could be developed from scratch.
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Would you? If you're the state, you can simply make it so that "in fifteen years, we will switch to a central registry. If you think you have a claim to this land, contact us before ten years from now, or you lose it".
And even if not, it's a one time payment that permanently does away with 'running titles', so it's still probably worth it in the long run.
I think you're taking too narrow a view of "claim to this land". There's a common perception that these primarily involve claims involving a fee interest in the surface that arises from something like an unresolved estate, divorce, etc. The reality of the situation is much more complex. Consider a typical rural parcel in Western Pennsylvania, Northern West Virginia, or Southeastern Ohio:
A 20 acre tract with a house was purchased by the current owners in 2004. It has a clean chain of title with no gaps going back to patent. It was never part of an estate, lawsuit, divorce, bankruptcy, Sheriff's sale, or anything like that (the last two sentences are wholly atypical, but I'm simplifying things here). In 1901 the surface owner sold the Pittsburgh Seam coal to an intermediary who in turn sold it to a mining company, and through several further sales and corporate mergers it's now owned by Consol. In 1917 the oil and gas was leased to Allegheny Heat and Light Company, who drilled a well on the property in 1919. In 1922 the surface owner conveyed the property by deed and reserved "1/2 the oil and gas" underlying the property. The owner of the severed interest has since passed and the reserved 1/2 interest is now shared among 16 individuals, in unequal proportions. In 1940, the surface owners conveyed the Freeport Seam, but this coal was never mined. It is currently owned by Massey Energy. The 1919 well is still producing, meaning the 1917 lease is still in effect. Through various mergers and assignments, the lease is now held by Tri-Star Energy, LLC. In 2012, Tri-Star assigned the production rights to deep formations to Noble Energy. Noble then assigned the deep rights to Chevron but reserved an overriding royalty interest equal to the difference between 18% and the existing royalty burden. Statoil then assigned these rights to Rice Energy, who then merged with EQT. EQT, looking to develop the oil and gas, entered into a joint operating agreement with Chevron involving the Marcellus formation. 10.575 acres of the 20 acre tract were made part of the Piston Honda Unit. Piston Honda was then included as part of a $1.2 billion mortgage to Wells Fargo. EQT then sold the deeper Utica formation rights to Pennzoil Production Company. Over the years, there have been several recorded easements involving the property. The owners are aware of a gas line that crosses the road near the house and runs along the property's western edge, and some old telephone lines that cross the back corner of the property and may or may not be operational. When the property was purchased in 2004, it was financed through a mortgage with Wesbanco that is still in effect. In 2015, the owners took out a $25,000 revolving credit line with Dollar Bank that remains unreleased.
Under your proposed system, I count at least 27 potential claims to the property, and that's assuming that the surface owners won't have to make their own claim. "Contact us" is also vague, because in any reasonable system "contact us" means "file suit for quiet title". I say reasonable because no land registration system worth its salt would simply take a naked assertion of an interest in real property at face value. What's realistically going to happen in this situation is that every mortgage company, coal company, oil and gas company, telephone company, power company, water company, and other potential lienholder is immediately going to look through their records and file in rem actions against any piece of property upon which they have a plausible claim, seeking declaratory judgment that their claim is valid and that their interest can be recorded in the land registry. I don't even know how this would work in practice, because all those claimants would theoretically have to provide notice of the suit to all the other potential claimants, which would result in a huge mess of lawsuits that no calendar control judge could possible make heads or tails of, and there are additional complications that I won't even get into here. The worst outcome would be that the couple who bought the land in 2004, got title insurance, and haven't had any problems since are now going to find themselves defending numerous claims, and are likely going to have to spend a ton on legal fees just to maintain what they have. Is that 1965 power line easement still valid or not? West Penn Power is going to argue that it is. Companies will never concede that any right of record has been invalidated.
This is why land registration systems typically put the burden of proving title on the surface owner. In the Progressive era, this was touted as a reform over traditional title, and something like a dozen states implemented land registration systems between around 1900 and 1917. Most of these have been abolished, and the remaining ones are just pale ghosts of what they were intended to be, vestigial remnants of ill-considered reform. The problem is exactly what I stated earlier: If you're going to make title ironclad, you have to ensure that the registration accounts for all existing interests. And to accomplish this, you have to provide anyone with an interest due process to ensure that their property rights are respected. What this means in practice is that someone seeking to register title under these systems was required to conduct a thorough search and file suit in court, with any conceivable interest holder notified in the suit. Even in the early 20th Century, with fewer than 100 years having passed since patent and things like mortgages and mineral leases in their infancy, this proved an expensive prospect, which brings me to your second point:
Is it? The problem is that it places all of the burden on the person seeking to register the title. I've handled partition suits before, which are similar but much more limited actions, and you're still looking at 5 figures to resolve the suit. Get into a situation where you have to notify every party with an interest in the property, and you're now looking at the cost ballooning exponentially. All the minor claims that a title insurance company would ignore under the presumption that no one would raise them (and that if they were raised, it was rare enough that they'd just pay), now have to be litigated. And how is a court to determine if you've done the proper due diligence? If a title is registered, it's supposed to be indefeasible. But what if a critical party wasn't properly notified of the action? What if the party seeking the registration intentionally did a half-assed job in the hope that potential claimants would slip under the radar? This became a problem in states with registration as the 20th Century wore on, as the process essentially became a way for people with questionable titles to legitimize their claims so that they were beyond reproach. Otherwise, what's the benefit to the landowner? Pay $25,000 (conservatively) now so that future purchasers can save a couple thousand bucks on title insurance?
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