The Nature of Title Insurance

Abstract

Companies In some parts of the country real estate purchasers rely solely upon an abstract of title as an alternative to title insurance. An abstract should not be considered as evidence of title, but rather as a statement of the recorded history for the title. The abstract is often prepared by a non-lawyer, and the abstracter's activities are sometimes referred to as the title search. As the system of title records became more complex, the abstracter's services became specialized, and the abstracter began to serve several lawyers. Ultimately he dealt directly with the public. In areas where the commercial abstract system is in more general use, the practice is for the seller of a title to furnish the buyer with an abstract of title. At the time that the commercial abstract system de eloped, the corporate form of doing business replaced the sole proprietor and partnership forms. The necessity for greater permanencv and financial responsibility can be cited as reasons for this change in business organization. This necessity with the growing complexity of title records, stimulated the improvement of title plant methods and the resulting need for larger capital investments. Originally, the abstracter was liable only to his employer-the lawyer or seller who hired his services. Seldom could the buyer of realt successfully hold the abstracter legally responsible for injuries suffered because of the abstracter's errors or omissions. It is now common, however, to hold that the abstracter is liable to a buyer or mortgagee for mistakes or omissions if the abstract was prepared with the knowledge that such party intended to rely on it. In fact, a number of states have enacted legislation which makes the abstracter responsible not only to the purchaser, but to all persons who purchase land or extend credit thereon in relianee upon the abstract.8 It should be recognized that the abstract company does not undertake to indemnify against loss by reason of defectiv e title, as title insurers do. The abstracter does not guarantee title or render an opinion as to title. Rather, the abstract company is liable only if negligence can be established in regard to errors or omissions in the abstract itself. If the abstract discloses a fatally defective title, the abstracter has fully discharged his responsibilities; thus it is normally necessary to have a lawyer's opinion as to the quality of the title disclosed by the abstract. It can be noted that many title insurance companies evolved from the corporate abstract operation, when the abstract firm agreed to indemnify its clients for losses resulting from defective titles it had abstracted.