Read on for the truth about how property ownership actually works, why our current system is a mess, and what the next generation will look like
First, some real estate definitions
"Title” refers to the ownership rights of a piece of property.
A “deed” is a document that transfers ownership from one party to another, which can provide evidence of title.
Confusingly, "title" is often used to mean "deed".
The most important issue in title is: how do you definitely know who holds it?
For some historical background, check out this thread to see how our system originated in English feudal times and how ownership was recorded in the Domesday Book.
Ideally, there would be a definitive registry that records and verifies all transfers. You could see the entire history of ownership and know that it was complete and correct.
Finding the current owner would be as simple as looking at the latest entry under the buyer column.
Our system today resembles this, but differs in crucial ways.
At closing, the deed is recorded at the county and becomes public record. Unfortunately, these records are not guaranteed to be complete or correct.
This is where the concept of chain of title comes in to play.
A chain is only as strong as its weakest link.
Did the party who sold you the property actually own the property and have the ability to transfer it? Can we do this going all the way back to the original owner of the land?
It's not always possible.
Three main challenges:
➡️ Historical records may have been lost
➡️ A deed in the chain may not have been recorded. Deeds don't need to be recorded to be valid.
➡️ There may be unresolved claims on the property that carry forward to today
Different types of deeds offer different levels of protection to the buyer:
Warranty deed > grant deed > quitclaim deed
In a general warranty deed, the seller guarantees against all title defects. However, there is still a risk that the seller defaults on their guarantee.
The title insurance industry was created as the answer to all of these challenges.
For a small fee, they will insure the interested parties against title defects which could affect their ability to enjoy or sell the property.
Innovation will happen, changing the way title is transferred. The new registry will be:
✅ Unforgeable
✅ Accessible to all
✅ The sole source of truth
A blockchain ledger could be very effective.
One open question: what about defects that predate this registry?
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Title insurance covers all sorts of unexpected issues
• Inconsistent wills
• Restrictive covenants
• Missing or flawed records
• Ownership by another party
• Incorrect signatures, forgery and fraud
• Encumbrances and judgements against the property
Our legal principles of ownership derive from English common law, dating back to feudal times.
It's fascinating history and important background to understand title issues. 👇
1) After the Norman Conquest, William the Conquerer declared that all land belonged to the king.
He gave his supporters, who became barons, ownership over vast parcels of land (a fiefdom). In return, they provided knights for military service in proportion to their holdings.
2) There were two ways for a baron to provide knights:
a) use the money earned from the land to hire mercenaries
b) carve out of their land a smaller fiefdom, known as a manor, to a knight in exchange for service