ALTA Responds to Washington Times Article Attacking Title System
October 15, 2010
The article titled “Foreclose on our antiquated title system,” which appeared in the Washington Times, fails to convey the many benefits derived from the land titling process followed in the United States. Because the land title transfer system in America works so well, most consumers never take the opportunity to learn how or why it works or the personal and societal benefits derived from this highly effective system of assurance.
However, when an individual sits at a closing table to sell one house and buy another, the main reason such a complex real estate transfer can be quickly accomplished is because an independent, third party title/settlement professional has already scoured the public record (property records, tax records, and court records) to establish legal ownership of the property being sold, cured any title or public record defects (one third of all transactions reveal a title or public record defect), accounted for and transferred all of the money intended to change hands, and insured the entire transaction against any mistake, fraud, risk or defect, whether it is known or unknown.
As a practical matter, this means that buyers are more willing to purchase property because they are insured against property fraud and defects in the public record. Lenders are more willing to make loans because ownership by the borrower of the collateral, or real estate, is guaranteed through title insurance. The secondary financial markets are willing to buy mortgage-backed securities because, in the event of a default, their right to the underlying collateral is assured.
The United States is able to tap the wealth locked in the ownership of property because of a system that allows people to use their property as collateral to obtain credit. World-famous economist Hernando DeSoto called this mechanism, "the mystery of capital" in his book by the same name.
The genius of the American system is that government doesn't validate or insure the transfer of property. This function is performed by the title insurance industry, which assumes any legal risk associated with the transfer of the property. When property changes hands in our county, it is done through a private contract that is recorded in the public record.
Blowing up the land recording system that the United States currently enjoys and creating a new structure would not have prevented paperwork issues stemming from the faulty foreclosure processes followed by many lenders. No system in place would.
It's the efforts of the land title insurance industry that minimizes errors in the public record and is why the United States enjoys some of the lowest costs in the world associated with purchasing property. We also benefit from the shortest timeframe in purchasing a home, typically one month. In other countries, it is very expensive and takes several months or even years to purchase property. This is a luxury we take for granted.