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History of Title Insurance

In early recorded history, rights to land were established by occupancy. Wandering communities foraged the land and fought each other for control. Not until the Agricultural Revolution was land considered to have intrinsic value, due to the crops it could yield, that extended beyond a given year. In 1066 A.D., William the Conqueror introduced the feudal system to the British Isles and established the concepts of tenancy and sub-leasing. However, no one but the king had absolute ownership of the land. In 1660, Parliament abolished the feudal system, but many of the tenets (not tenants) remain with us today.

Skip to the American colony of what is now Pennsylvania in the 1700s. Disregarding prior claims by the Swedes and the Dutch (Henry Hudson), William Penn accepted land in lieu of cash from King Charles II. Penn systematically began conveying leasehold interests in Philadelphia and the surrounding areas by lottery, obtaining deeds of transfer from Indian tribes along the way.

Following the American Revolution, public sentiment held that since common blood was shed to preserve the new land, personal ownership should be enabled. After review of the Penn deed, Pennsylvania Chief Justice Thomas McKean disagreed and said the Penn claim held. Pennsylvanians went crazy, and the result was the Divesting Act of 1779. It transferred ownership interest away from the Penn heirs for the sum of $130,000. As a side note, had the Penn's declined to accept the offer, the state's citizens today may have found themselves living in a state of tenancy with all Pennsylvania's lands being owned by the Penn heirs!

The Divesting Act established 67 counties, directed a recorder of deeds function in each county seat, and set up a search system that is still unique to Pennsylvania. Land was purchased upon the search of records and the assurance of qualified legal counsel as to the validity of title.

In 1868 in Philadelphia, a transaction was consummated which demonstrated very forcefully the necessity of having some further type of protection other than the mere examination of the records. It was the case of Watson vs. Muirhead in which Watson (buyer) sued Muirhead (searcher) for a substantial loss resulting from the purchase of property, paid for by Watson, that was sold instead at a sheriff's sale (undisclosed lien).

Watson lost his lawsuit and his money. But as a result of the loss incurred in this transaction, for which the attorney and the conveyancer were not held liable, a group of individuals interested in the law of real estate decided that something should be done to protect innocent investors from such similar hazards.

So in 1874, the Pennsylvania Assembly enabled the creation of the Real Estate Title Insurance Company of Philadelphia. We know them today as Commonwealth Land Title.

Lincoln Lost His Home Twice To Title Defects

Abraham Lincoln was born in a meager, one room cabin on the Big South Fork of Nolin's Creek near Hodgenville, Kentucky. It had a dirt floor, one window, and a sticky-clay chimney. Lincoln's father, Tom, had paid $200 for the cabin and 300 acres of unproductive land. It wasn't much, but it was home and the young family's only chance for a decent life.

After four years of fighting mosquitoes, heat, and hardscrabble land, the Lincolns had to pack up and leave. There was a defect in the title.

They did not have the right papers and somebody else had a better claim to the land. With three-year-old Abe in his mother's arms, the family moved eight miles away to Knob Creek.

In less than four years, Tom Lincoln had to go to court to prove his ownership rights to this second farm. Another claimant to the land sued him as a "trespasser." Tom Lincoln won the suit, but was haunted by the fear that he might someday lose another property. There was enough talk of land titles, landowners, landlords, land laws, land lawyers, and land sharks to make him unsure of his title. After all, Daniel Boone, the first pioneer of the Kentucky wilderness, had lost every inch of his once vast landholdings because he had "the wrong kind of papers." Tom then decided to move his family to Indiana where there was rich, black land— government land with clear title and the right kind of papers. Thus, Abraham Lincoln lost a second home to title problems.

It was the anxiety and outright losses of the Lincolns and other hardworking Americans that gave rise to today's title insurance industry. The first land title insurance company was founded in Philadelphia in 1876 to protect buyers against the hidden hazards of real estate ownership; forgeries; faulty surveys; hidden liens; conveyances by a minor or mentally incompetent person; the false representation of married person as being single; and many other title defects. Even the most complete search of records may not reveal them all.

Today, title insurance is just as important as ever. The same potential flaws in title exist. A home is still the largest purchase most of us make in our lifetime. And, with escalating land values, the loss of property can still bring a family to ruin. Consequently, both buyer and seller should insist on the stability and reliability they receive from an Owner's Policy.

The unfortunate loss of the Lincoln family would have been covered by insurance had Tom Lincoln owned a title policy.