Torrens Session 03 04 2010 Combined Deck Final

Property Records Industry Association

Torrens Land Registration

Carol FoglesongPeter Rabley/Justin T Holl, Jr

Mark MonacelliDavid Ewan

Property Records Industry Association • www.pria.us

Introduction A year ago (March 2009) Peter

Rabley presented “Land Registries Around the World”

Inquires followed: I’ve heard about Torrens land

registration but I have no idea what it is! Is it better or just different?

So, this is your educational session


Introduction They mean to be thought-provoking

So THAT’S why they do it that way! What IF we did it differently? Might this change my view of other

proposed changes in the industry? Can this information help me do my job

better tomorrow?


Introduction Presentation is founded on a

whitepaper currently being drafted titled:“The Earthen Vessel: Land Records in the United States” Special thanks to Justin Holl of ILS


Introduction Peter Rabley, International Land Systems

Background & History of Torrens in the US Mark Monacelli, St. Louis County Recorder

A Day in the Life David Ewan, NJ Title Insurance Company

Torrens & the Title Insurance


Background on Torrens Peter Rabley

International Land Systems


Background on Torrens in the US – Why?

Government function to maintain land records The earliest written records from 4th century

B.C.E. in Mesopotamia Last two centuries legal rights and

responsibilities in real estate transactions have become a primary concern


Background on Torrens in the US – Why?

Good land records inspire market and public confidence

Property rights are a major engine to economic development

Transparent property rights and processes are essential to stable economic growth


Background on Torrens – Principles of Land Systems

RIGHTS

• Ownerships• Leaseholds• Servitudes• Restrictions• Encumbrances• Caveats

PARTIES

• Owners• Tenants• Mortgagors• Trustees• Caveators• Attorneys

PROPERTY

• Parcels• Buildings• Construction• Apartments


Background on Torrens – Expectations of Land Systems

Simple & Understandable Procedures Effective & Secure Documentation of Rights Protection against Infringement of these Rights A Public Record of these Rights so Others Know Records Complete and Incontrovertible Proof Convenient Methods for Transferring these Rights Effective Procedures for Preserving the Record


Background on Torrens – Early Land Systems - US

Turf & Twig Livery of Seisin Terminus

”stake and heaps of Stones”


Background on Torrens – History of Land in the US

Spain in Florida and the Southwest, France east of the Mississippi and

north of the Ohio River, The Netherlands present day New

York, England along the eastern

seaboard, Russia extreme NW including

Alaska.



In the original thirteen colonies a charter for the land from the King.

William Penn received a charter from Charles II for Pennsylvania. The London Company received a charter to establish a

settlement that became Virginia, and the Plymouth Company received a charter for what is present day

Maine Pilgrims received a patent from the London Company for a

settlement in New England near Cape Cod.



Governing Subdivisions in Virginia based on those of England of the time.

1634 8 Shires in Virginia Boundaries extended Westward Land records first office established in early

government divisions “Conveyances of land must be registered in the

court of the county wherein they lie, or in the general court, or they are void, as to creditors and subsequent purchasers.” T. Jefferson

Vital and land records were established at the county level in the original colonies



1787 Constitution created Federal Government

Article X“The powers not delegated to the UnitedStates by the Constitution, nor prohibited by itto the states, are reserved to the statesrespectively, or to the people.” Laws of Real Property were left to the

States. Treaty of Paris 1783 British cede land to the

United States

Land Ordinance of 1785 & Northwest Territory Ordinance of 1787



1812 General Land Office (GLO) in the Department of Treasury managed the lands in these “other” states

In 1946, the GLO was merged with the Federal Grazing Service to create the BLM

“253 million acres (1,023,855 km2) or one-eighth of the landmass of the country. BLM also manages 700 million acres (2,832,800 km2) of subsurface mineral estate underlying federal, state and private lands”

Establish method for organizing and subdividing the federal land through the public land survey system (PLSS).


Background on Torrens – Formal Systems of Land in US

Two formal systems of property Deeds Register Systems Title Register Systems

Deeds Registers are older than Title Register Systems

Deeds Name Index Parcel Index


Background on Torrens – Deeds & Title Systems

LEGALRELATIONRIGHT(S)

0BJECTLEGAL LANDOBJECT

SUBJECTRIGHTFUL CLAIMANT(PERSON/ENTITY)

RELATIONSHIP BETWEEN MAN AND LAND IN DEED SYSTEM

SUBJECTRIGHTFUL CLAIMANT(PERSON/ENTITY)

0BJECTLEGAL LANDOBJECT

LEGALRELATIONRIGHT(S)

RELATIONSHIP BETWEEN MAN AND LAND IN TITLE SYSTEM

Source: Hansen 1995



Deeds: little governmental scrutiny Title: high degree of governmental scrutiny Deeds: Rapid recording Title: Slower and bureaucratic Deeds: Burden on private sector to determine right holders Title: Burden on government to determine right holders for

both first registration and subsequent transactions



Deeds System Relatively minor administrative costs Normal administrative skills The number of staff depends upon

number of transactions Cost of maintaining registry is much

less for government Rights validity is determined by

private sector

Title System Major administrative costs

Requires highly skilled legal specialists

Expensive Cost of maintaining system is borne

by government Rights validity determined by

government


Background on Torrens – Title Registration Systems

Title registration origins in Germany, Austria, Switzerland.

Hanseatic League Different use of the property

concept and organization of the cadastre (fixed) and role of private licensed surveyors.

Property Records Industry Association • www.pria.usCopyright © 2009 International Land Systems (ILS), Inc.



Government Certified Title Appropriate Legislation Certificate of Title (Transparent to Public)

• Ownership• All Encumbrances

Indefeasible Title Government Maintains Adjudicated Title for Subsequent Transactions Parcel Based Guarantees (Mirror, Curtain, Possibly Monetary) Adjudication: Systematic or Sporadic



There are two different phases in a title registration system• First registration, that is bringing a property into the title system in

the first place• Subsequent transactions after first registration

First registration usually involves an adjudication process• This can be administrative, or• In a court action



First Registration – Combined Approach – Systematic and Sporadic May be most practical economically Trigger approach (most common) HMLR e.g.:

• transfers for value, • mortgages, • subdivisions resulting in three or more parcels of land, • new condominium developments, and • Any proceedings that result in an adjudication of titles.

Use systematic registration in certain problematic areas, sporadic in others



Guarantees Title registration systems guarantee that the persons named as owners in a certificate

of title have an indefeasible title They do not necessarily guarantee boundaries, but a few systems do They do not guarantee the validity of encumbrances Mirror guarantee: That the register reflects the current status of title Curtain guarantee: That the current register is the sole source of title information and

that no other source need be consulted, and Indemnity guarantee: Often government will reimburse persons suffering loss caused by

errors, omissions, or misfeasance of the Registrar under legislatively defined conditions.



Encumbrances can’t be guaranteed, because their validity depends upon external facts

Example: Mortgage• Could be usurious• Truth in Lending may have been violated• Other consumer protection may not have been followed



Registered title is considered adjudicated title Once a title is registered every transaction is scrutinized by

the registry office for its validity This is in contrast to deeds registration where the validity of

a transaction is not determined by the registry office The Registry office must be staffed with highly skilled

professionals



Examination The public needs access to the register in order to determine the current status

of title Because of the “curtain guarantee” there is no need for a title search and

examination of the “chain of title” There is no chain of title for a parcel that is registered in a title registration

system Some jurisdictions allow direct access to view the register for a parcel of real

estate



Examination Some jurisdictions require that an application be submitted stating the reasons for viewing the

information, All systems will provide a title report, No title search to construct chain of title, Attorney simply reviews the information on the certificate of title Mortgages, liens will have to be paid at closing These will be listed in the encumbrance section of the certificate of title Very easy to use for attorney Understandable to client



Examination Title Registration systems are often perceived as being bottlenecks

in a transaction because they require additional scrutiny There is often a high rejection rate of documents The registry office often requires multiple trips by parties to satisfy

examiners


Background on Torrens – Who was Torrens?

Sir Robert Torrens the colonial treasurer and registrar-general for South Australia in 1852.

He advocated for conveyancing reform Published a Torrens bill in 1856 and as member of the House of Assembly

introduced a bill in 1857, which was adopted as law on January 28, 1858, His “system” can now be found in Australia, New Zealand, US, some

provinces of Canada, and some countries in the Caribbean, Asia and Africa. Modified Torrens – starting in late 1950’s in Kenya Entered US through Illinois in 1897


Background on Torrens – Why the Torrens System?

“by reason of complexity the community is firmly bound to use a solicitor,

heavy costs are thereby imposed no matter how simple the transaction may be,

"losses and much perplexity" are occasioned to purchasers and mortgagees by reason of the uncertainty of title,

the time involved in the legalities of the transaction is unsuited to the needs of a progressive community, and

the operation of this law (the English Law of Real Property) diminishes the value of land as a secure and convenient basis of credit.”


Background on Torrens – Why the Torrens System?

Three Key Underpinnings: “All properties were to have one

document, a certificate of title, to evidence ownership,

All interests in every property had to be registered on that certificate of title, and

The certificate of title had to be guaranteed by the government. “


Background on Torrens – Features of the Torrens System

“Every estate in freehold is represented by a certificate of title, Title to land is exhibited by registration, Every certificate of title is guaranteed by the government, Every registered proprietor named on the certificate of title can be

treated, so far as third parties are concerned, as possessing an indefeasible title,

Any person who contemplates a dealing with a registered proprietor must be quite sure that they are in fact dealing with that person,

Registration may correct a defect in title for bona fide purchasers,


Background on Torrens – Features of the Torrens System

The certificate of title is the place where the general public is entitled, and expected, to look for interests affecting a property,

Knowledge, or notice, of an unregistered or outstanding interest in a property is not considered of itself to be evidence of want of good faith, and

No trusts may be registered on the certificate of title.”


Background on Torrens – History of Torrens in the US

“ That it is the sense of the delegates of the World’s Real Estate Congress that they should do what lies in their power to call the attention of their various State Legislatures to the benefits of the Torrens system and recommend its adoption, so modified as to suit to our State Constitution and laws”

‘World’s Real Property Congress’ World’s Colombian Exposition, Chicago 1893



Used initially in US to clear problems in the record Torrens system was instituted in Cook County 1895,

Illinois following the destruction of all public land records in the Great Chicago Fire of 1871, and in metropolitan Boston as a response to the poor quality of historical land records in New England.



Enactment in California, Massachusetts, Colorado, Minnesota, Washington, Ohio, and New York.

Initial virulent opposition by conveyancing attorneys and title insurance companies.

Legal attacks on Constitutional grounds were common, and successful in some instances.

At one time more than twenty states had Torrens statutes, but most have been repealed.



Eight states currently utilize Torrens land registration systems.

Active Torrens registration include Minnesota, Massachusetts, Colorado, Georgia, Hawaii, North Carolina, Ohio, and Washington.

The U.S. Territories of Puerto Rico and Guam also utilize Torrens systems to some degree.



New York and Illinois previously utilized Torrens systems. Suffolk County was the last New York county to have active Torrens certificates. All certificates were to be delivered to the County Clerk for recording on or before January 1, 2000. From January 1997 to December 1999 adverse instruments were allowed. Voluntary instruments were disallowed on January 1, 1997.



In Illinois the use of the Torrens system declined in the 1930s,

60 years of public records were available to private insurance companies, who competed vigorously with the Torrens system, and

In January 1992 the Illinois legislature began the process of phasing it out.


















Torrens In Daily Use Mark Monacelli

St. Louis County (MN) Recorder


Torrens In Daily Use When/why was Torrens introduced in

MN The difference between Torrens and

Abstract Title View a Torrens Title certificate Torrens benefits Torrens drawbacks


History of Torrens in MN Introduced in 1901 as an alternative

way to title property Legislation authorized three MN

counties with a population over 75,000 Hennepin, Ramsey and St. Louis


From the 500’ Level Abstract title-a quite title action, by Court

order, will provide evidence of title Torrens system the title is registered in

the name of the owner, with legal description, and a new source of title is created

Torrens and abstract title are separate Torrens is an adjudicated title process

Under the jurisdiction of the District Court


To Register property/boundary

Owner files an application with the Court Examiner of Titles examines the abstract

Legal advisor to the Registrar If boundaries are unclear may request a

Registered Property Survey Public notice is served Examiner cites defects, etc. If no contest-title is issued If contested the Court will determine ownership,

etc.


Certificate of Title Transfer of ownership can only be by

deed, court order or certificate from the Examiner of Titles Subject to seven statutory exceptions

The Registrar issues the Certificate of Title What if there’s a mistake?

Assurance Fund compensates for loss $1.50 per document held by the state Few claims


COT



Benefits… Not subject to claims/adverse possession Peace of mind as the boundary, etc. is set Owners duplicate prevents fraud Cleaner and more perfect form of title All title information is listed on cert., title research

is easier Fewer legal description issues Most new developments use Torrens System is automated MN Chapter 508A is streamlined

process/uncontested


It’s not all smooth sailing… *Mgmt. perspective*

Two title plants Increased cost/requires more employees Two separate job skills

Staff requires more skills and training Cross training is more problematic Cannot commingle operations

Microfilm, etc. Can be confusing to the public Can have two forms of title in a parcel Takes more time


Torrens & Title David Ewan

New Jersey Title Insurance Company


Background of Title Insurance As discussed, deed

recording/registration has been used in the US for hundreds of years.

As with Torrens, title insurance is a relatively “new” development.

Title insurance only began in 1876 in Philadelphia, PA


Background of Title Insurance Before title insurance, buyers in real

estate transactions bore sole responsibility for ensuring the validity of the title held by the seller.

If the title were later deemed invalid or found to be fraudulent, the buyer lost his investment.


Background of Title Insurance Question: Why did Abraham Lincoln

wind up living in Illinois? Answer: Because his father (Thomas

Lincoln) was the defendant in a title claim in Kentucky where he was born. Rather than pay to defend against the claim, they moved to Indiana (and then later to Illinois).


Background of Title Insurance In 1868, Watson v. Muirhead was heard

by the Pennsylvania Supreme Court. Muirhead (plaintiff) had lost his

investment in a real estate transaction as the result of a prior lien on the property.

Watson (defendant), the conveyancer, had discovered the lien prior to the sale but told Muirhead the title was clear after Watson’s lawyer had (incorrectly) determined that the lien was not valid.


Background of Title Insurance The court ruled that Watson was not

liable for mistakes based on professional (the lawyer’s) opinions.

Like Thomas Lincoln, Muirhead lost big time.

As a result, in 1874, the Pennsylvania legislature passed an act allowing for the incorporation of title insurance companies.


What is Title Insurance? Title insurance originated as a contract

of indemnity that covers the insured person against loss or damage arising out of existing title defects or encumbrances other than those specifically excepted.

Modern extended coverage policies also include protection for certain post-closing events, such as forgery.


Torrens AND Title Insurance? If the Torrens System says the

State provides assurance as to title, why would we need title insurance?


Torrens AND Title Insurance? To promote ease of transaction, the Torrens

system reverses some of the property rules of common law conveyancing.

A purchaser for value (and, in some jurisdictions, a gratuitous transferee) obtains upon registration a title that cannot be impugned on the ground that the seller’s title was defective, or that the conveyance from the seller to the purchaser was invalid for any reason.

REGISTRATION = TITLE


Torrens AND Title Insurance? The Torrens system compensates the ‘true

owner’ for the loss of his or her property right pursuant to this rule.

Under the Torrens system, a man is to have either his interest in the land or adequate monetary compensation therefor.

In reality, there are gaps in the coverage provided by the State guarantee. The gaps, and the extent to which title insurance can remedy them, are as follows:


Torrens AND Title Insurance? Registration Gap The Torrens System operates only upon

actual registration (not submission). The period between acquisition of a

property right and the actual registration of it is the “registration gap,” one of the major problems facing the Torrens system.


Torrens AND Title Insurance? First Resort or Last Resort? Title insurance can improve upon the protection

provided by the Torrens indemnity by giving greater coverage against risk and improved enforcement of rights.

The Torrens statutes may vary considerably in their provisions for enforcement of remedies. In some jurisdictions, the Torrens indemnity operates as a fund of last resort. In these jurisdictions, claimants must first exhaust their remedies against the person who was responsible for the loss or who has benefited by the error before becoming eligible for payment from the fund.


Torrens AND Title Insurance? Additionally, the trend of recent

legislative change in Torrens jurisdictions has been to restrict rather than to extend right to indemnity.

Governments have become increasingly unwilling to indemnify for losses caused wholly or partly by the fraud or negligence of agents and professionals acting for the claimant.


Torrens AND Title Insurance? With Title Insurance, the insured is

entitled to payment of the indemnity without any necessity to bring a legal action against the insurer or any other person who caused the loss. (First Resort).


Torrens AND Title Insurance? Post Acquisition Risks The extension of the modern title insurance

policies to cover post-acquisition risks makes title insurance more attractive to holders of Torrens titles, since the principle of immediate indefeasibility (some jurisdictions) has reduced their security in the period following registration.

Under the rule of deferred indefeasibility (other jurisdictions), registered owners deprived of their interest by the registration of a forged or otherwise void instrument were entitled to be restored to the register.


Torrens AND Title Insurance? The shift from deferred to immediate

indefeasibility improves the security of purchasers, but increases the risks that “true owners” may be deprived of their titles after registration through the wrongful act of another.

In effect, immediate indefeasibility operates to shift risk of loss from the pre-acquisition to the post-acquisition stage.


Torrens AND Title Insurance? Duty to Defend Under a title insurance policy, in

addition to indemnity, the insurer undertakes to cover the costs, legal fees and expenses it incurs in defending the insured’s title.

The costs incurred by the insurer in defending the insured’s title do not reduce the amount of the indemnity for loss payable under the policy.


Torrens AND Title Insurance! Each has its strengths. Each has its weaknesses. The two are NOT incompatible And actually can complement each

other.


Background on Torrens – What happened in the US?

Economies of scale are needed to realize costs savings for Torrens systems,

Secondary use is the major benefit not initial, Large initial volume is needed, Private sector initially provided strong opposition and

mobilized resources to transfer the volume to the market. There was no such lobby for Torrens,

Requires government to take liability and provide guarantee,


Background on Torrens – What happened in the US?

Many benefits to the system are external to the person receiving title,

State had to compete with private sector to hire and train highly skilled staff,

Title Insurance developed quicker than State Assurance Funds, US is large and land recording is fragmented to the local level

3592 offices, and Inertia. Historically deeds systems had been in place for 200

years before Torrens was introduced.


Open Discussion Questions? Comments? Interrogatives?

Property Records Industry Association

Torrens Land RegistrationCarol Foglesong

[email protected] Rabley

[email protected] Monacelli

[email protected] Ewan

[email protected]

mailto:[email protected]




Documents

Torrens Session 03 04 2010 Combined Deck Final