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Brief Fact Summary. Since Colonial times the predominant system for achieving an efficiently operated real estate market has been the “recording system”, which relies on public records containing the history of all transactions for a tract of land. The buyer consults this record and gathers evidence that the seller has good title and that no other valid claims exist. Under the recording system, there is still a possibility that an unrecorded claim exists or that there has been an error made in the public record, therefore the buyer does not have proof that the seller holds good title. In order to avoid the risks of the buyer in losing his interest if an unknown party later asserts a claim, and to avoid the costs of title insurance (which provides financial indemnification in the event of a loss), in 1858 Sir Robert Torrens developed an alternative system for ensuring that a state’s legal procedure guarantees the owner’s title. The court exams the title and ultimately issues a certificate to the owner that establishes legal ownership against any claims that are undeclared or unrecorded at the time of registration.
Synopsis of Rule of Law. Under the recording system a good-faith purchase bears the risk of losing his interest if a claimant comes forward, whereas under the Torrens system the owner’s certificate defeats any competing claims not declared at the initial proceeding. Undeclared claimants can seek monetary compensation from a public Torrens indemnity fund financed by registration fees. There is also no need to purchase title insurance with the Torrens system. The Torrens system clears clouded titles, making land more marketable and encourages development.
Discussion. The initial cost of registering a parcel is very costly, however the high up-front cost is weighed with the savings for subsequent transfers of the property.
-In jurisdictions with the Torrens system buyers still continued to obtain title insurance, the cost of insuring both unregistered or registered land also remained the same.