The last time I bought a house (this was in California) I read the title insurance policy (as the author says, it's short). Turns out it protects my claim in perpetuity meaning that when I sell the property I am still covered against any claims later brought by the buyer or their insurance company.

Obviously therefore I don't need the insurance: in the very unlikely case title might be challenged I can always just sue the policy of the (now deceased) people who sold the house to me.

The title company of course did not like this. More importantly: they were the one conveying the title (a lawyer doesn't do this as happens in some other states). They said "we earn our money on this and if you don't buy the insurance we won't convey the title" (i.e. complete the change of ownership). And at least around here in Palo Alto only the title insurance companies handle this, at least according to my real estate attorney.

So basically I was required to pay an extra few hundred bucks for nothing. A true "junk fee".

My real introduction to Title Insurance came not when I purchased my first house, but as I sold it. The buyer was an experienced builder who was buying the house (in a fairly desirable area of the city where property was appreciating quickly) in order to add upgrades and flip it.

When his agent asked why he had crossed out the line for title insurance, he retorted, "that property's been sold three times in 10 years. The title's clean."

I guess there was still some residual risk, but he had a point.

> Many people, when they learn about land trusts, immediately assume that something extremely hinky is going on. Not so much; this is an extremely common way for savvy people to own property. It is in no way a loophole.

I'm inclined to disagree with this. One of those "not everyone doing it is up to no good, but everyone who is up to no good is definitely doing it" things. Obscuring ownership makes it a lot easier to evade the state in other matters.

The UK (and EU countries etc) has a register of "beneficial ownership" which attempts to untangle all such legal obfuscation efforts. https://www.ocorian.com/insights/understanding-uk-beneficial...

> [Generally the US local authority] does not record ownership but rather records certain private transactions. Current ownership is not an independent fact; current ownership is the sum of all compounding transactions since time not-quite-immemorial.

Event Sourcing with no snapshots.

A surprising law foundation in the US is that if you live somewhere long enough as if you were the owner, then it becomes yours. Sometimes known as "squatters rights". This feels a bit unfair at first.

However, this "if you think you own it, you probably do own it" has turned out fairly well. At least in most places in the US, unlike England, you don't have to trace all property transfers back to Norman Conquest in 1066 in order to know who owns land. Anyone who holds it long enough resets the baseline date at which you need to trace it back to.

This whole situation is absolutely bizarre to me as an Australian. Our states converted to a system of centrally registered title (also known as Torrens title) over a hundred years ago to avoid the “old system” problem of tracing ownership records backwards in time. Although the system is still in effect for some properties, in many cases they’ve been converted anyway.

I regret paying extra for buyer's title insurance on my home. (In my state, this is separate from the lender's title insurance policy.) I got sued a week after closing by someone with a meritless claim against the sellers, whose lawyer admitted they only added me to the suit "to put pressure on <sellers> to settle." I paid over $10k in legal fees and got $0 back from the insurance policy. (The claims against me were dismissed on summary judgment as a matter of law, and the sellers eventually won at trial, and later again on appeal, on the remaining claims.)

Just as frustrating, the title company knew about the claim before closing but didn't see fit to tell me. (They asked the seller to indemnify the title company—not me—from potential lawsuits, but the seller refused. The sale closed anyways, with none of this drama on my radar until well into the proceeding lawsuit.)

The reason the policy was worthless was that it had a very narrow definition of what constituted a title defect, and it would have involved another expensive, uncertain battle in court to try to establish that the lawsuit against me should have been covered. It was better to just eat my legal fees and treat them as part of the purchase price of the house.

I have to wonder why we haven't moved towards the Japanese example in the article, where the government provides a single-source of truth for title ownership.

The low-value, high-margin industry disappears, and presumably there are mechanisms built into the state to resolve problems.

I suspect it comes from a very similar logic to "why aren't wills centrally filed instead of random notaries and dueling documents?"

Title insurance is pure profit in some states. In Texas, the state sets the premiums and this is dependent on the home sale price [1].

In TX, for every $1 collected by title insurance companies, the insurance companies paid out roughly 1-2 cents. 98-99% profit. [2]

I have honestly contemplated setting up my own title insurance company, advertise low rate title insurance but under the table give the buyer or seller half of the premium back to them.

[1] https://tdi.texas.gov/title/Titlerates2019.html

[2] https://www.texasobserver.org/entitled-to-profit-in-texas-ti...

Title insurance also covers (sometimes long standing) errors in the survey of the property boundary. This can be somewhat expensive to say, move your driveway off someone else’s property.

I always thought of title insurance as a complete farce. However, I did end up with a scenario where title insurance paid out (to me) to the tune of several thousand dollars when I was sued by a neighbor.

The neighbor accused me of infringing on her property. I, in turn, proved (enough to the title insurance company, anyway) that the neighbor had also infringed on my property, and had done so in an invisible way (underground) since before I purchased the property. Since that infringement was not disclosed to me when I closed on the property, the title insurance company agreed to compensate me for that infringement to save the expenses of litigation.

At the end of the day, I ended up net positive to my own pocket as a result of their litigation. Unfortunately, a lot of lawyers made a lot of money in the process and everything (insurance, etc) ends up being more expensive as a result of crap like this.

I recall enterprising lawyers researched California coastal property titles back to the 19th century to overcome more recent prohibitions on subdivision -- successfully! Does anyone remember their names or details?

I recently performed a title search on a property going back to the 1820’s - the land was issued to the original owner by James Monroe and the buck stopped there.

An acquaintance performed a title search on another property going back to the 1100’s. They found a serious black and white error circa 1225 which voided the entire chain of claim. They did not report the error.

> The rest is a mix of government fee passthroughs and Obvious Nonsense, such as a $125 “water processing fee,” $55 for a wire transfer where that number is just made up, etc. But if I were to go through each of the 16 line items summing up to $1,400, we’d be here all day.

1400 EUR here in notary and government racket to change the number of shares in the company. Two paragraphs containing ultra basic math wrapped in legalese.

These 16 lines seems like they got a lot for $1400 compared to me. There's still way to go: the government rackets better and if they want to really sucker money in, they have to learn from the best!

I disagree with the author a bit here.

You are paying for title insurance mostly to buy the expertise of a local title agent who knows how to look up things locally.

There is no national database that is up to date and trustworthy for this. To be even close to accurate, you need to check the source of truth for property deeds, transactions, liens.

You need to check various level of governments if taxes are up to date. If they are not, there may be an implied lien.

You need to check for financial judgements against the seller, which again may form an implied lien.

Divorces and similar issues mentioned in the article.

I am involved in an in-laws estate where a mom died without a will, a daughter was living in the house for free, and she and her husband had substantial judgements against them (hundreds of thousands of dollars). Resolution has involved the horrors of the surrogate’s court, multiple real estate lawyers, bankruptcy of the daughter, financial negotiations with her creditors and bankruptcy manager, surrogate administrator bonds, and repeated discussions with a bank holding a second mortgage against the property.

This has been ongoing for six years and is finally now almost resolved.

Most transactions will not have any of these problems. But you get title insurance - or run the check locally yourself, at least - because you have no idea who the seller really is and what they may have gotten into.

Bureaucracy is, among other things, Someone Else's Moat.

As in, Title Search and Title Insurance could be treated as a Public Good and administered by a government entity (shock, horror!).

But people are making a lot of money off of it, so there is a bureaucratic moat.

The more I learn about real estate the less inclined I am in participating. I'll probably rent for the rest of my life.

As someone who is in the process of buying a house right now.. can someone give the TLDR of what I can actually do? Refuse the title insurance? Also the bit about land trust.. does this impact my ability to be underwritten for a mortgage?

I do not buy title insurance on investment properties if the last owner had a mortgage. If the title commitment was good enough for the bank, it’s good enough for me. I build the potential clouded or impaired title into my risk model.

(I’ve also filed public comments with the CFPB on title insurance being junk fees [1], full disclosure)

[1] https://news.ycombinator.com/item?id=40524304

That's an interesting argument. My intuition would've been the opposite: the title is much more likely to be dirty. 3 quick transactions in under a decade (and a fourth ongoing) means that many more opportunities for problems. Each transaction is a new opportunity involving a whole new set of people to be engaged in fraudulent conveyance or have a spouse pop out of the woodwork (as mentioned in OP).

Maybe he figured that the real safety comes from there being so many other people to sue given all the transactions...?

The question is also who will be left holding the bag. If title searches over the past 10 years have turned up nothing problematic, then likely when the flipper sells, their buyer's title search won't turn up anything either.

And once their eventual buyer buys the house, it's their problem (not the flipper's) -- well, their title insurer's problem -- if a title dispute comes up later.

And given that the flipper's goal is to hold the house for a relatively short time and make a profit on the improvements, a thousand or few saved on the title insurance could actually be a material amount of that profit.

What does he care? He’s flipping it. In the off chance there’s an actual title issue it’s unlikely to occur during the short time he’s holding

If you are knowledgeable enough about the risk that’s great. For an average person buying a house things can and do go sideways:

https://www.houstonchronicle.com/politics/houston/article/ho...

The opposite might be true actually--in my state, squatter's rights apply once a person has believed they hold the title for 7.5 years (20 years if they don't hold a title)

So it would be better from this perspective to not have much buying & selling, as long as the most recent owner is trustworthy & has used the property for the past 7.5 years.

He also was probably not financing the purchase with a mortgage.

As a practical matter I think this mostly confuses adverse tenancy with adverse possession. The latter case, of squatters gaining full legal title to a piece of property, is extraordinarily rare, and as I understand it the cases all tend to be marginal (like: abutments of adjacent rural properties changing hands). Adverse tenancy is somewhat more common: you can establish through your actions an expectation that you're a legitimate tenant, and it can be legally obnoxious to remove a tenant.

The cases Patrick describes in this piece aren't really about adverse possession, but rather about property sales where the seller (or the seller's seller, etc) doesn't have the full legal authority to sell in the first place, and the people who do show up later to contest the sale.

No, England has a new system, as of 2002. Property ownership records have been centralized, under "HM Land Registry", which has more authority than it used to have. Those records are now treated as definitive. If a fraudster can get a record changed in HM Land Registry, they own the property. The fraudster can only be sued for damages.[1] The fraudster has probably sold the property to an innocent party. That innocent party now has good title to the property, and the original owner is out. People have gone on vacation and had their houses stolen.

[1] https://www.getagent.co.uk/blog/properties/house-sold-withou...

England has full title gainable through squatting, but it's also been criminalized under most circumstances. These co-exist oddly.

https://england.shelter.org.uk/professional_resources/legal/...

(I'm glad you said "England", because the Scottish system is different, and the Register of Sasines https://www.ros.gov.uk/our-registers/general-register-of-sas... got replaced with a modern database round about the millenium)

Adverse possession becomes a lot more of an obvious outcome when one stops thinking about urban areas and well put together homes, and instead starts thinking about abandoned areas and properties with unknown owners. At the end of the day, towns want to collect property taxes and would rather have someone improving a property and paying taxes on it than a slowly degrading property that has clearly been forgotten about, considering the owner didn't notice the adverse tenant for decades. Or maybe nobody could manage to contact the owner for decades. Or maybe the named owner for a plot of land was lost to time. What is the other option, leave it untouched for decades and centuries because at some point in the past someone had their name on it?

When I applied for a development permit for my PV arrays, I had to do something very similar to the core of a title search. I headed on down to the county records department, and had to track down each sale (in reverse order), which are recorded in big paper books with handwritten entries, sorted by the first letter of the seller's family name then by date.

However, since this is New Mexico, and even the idea of formal record keeping here is, cough, rather recent, I only had to go back to 1980 for the purposes of the permit

:)

Yes, but keep in mind that "as if you were the owner" in at least some jurisdictions means that you were maintaining and improving the property and paying the property taxes. And we're talking about many years, not just squatting on a vacant property for a few months.

Utis posidetis is already present in Roman law.

> unlike England

We have the same thing in England though.

>You are paying for title insurance mostly to buy the expertise of a local title agent who knows how to look up things locally.

No longer true. Almost all title shops subcontract this out to small software companies that scrape public records and return an "all good" if nothing shows up. This query is usually done by a teenager or early twenty-something in a call center with zero experience, just data entry.

>There is no national database that is up to date and trustworthy for this. To be even close to accurate, you need to check the source of truth for property deeds, transactions, liens.

Sure there are, they're just private. Think LexisNexis.

>You need to check various level of governments if taxes are up to date. If they are not, there may be an implied lien.

Tax liens are not covered by title insurance.

The nature of the scam is not from title insurance being unnecessary, but title insurance not being purchased on an open market like other insurance products. It's added in to the contract, with financial benefit to the real estate agent, and not discussed.

The author's point about real estate being one-shot for the buyer and seller is spot-on.