Abstract
In the presence of uncertainty over the title of land (due to fraud or error), a legal system can protect either the current (innocent) owner, or a previous owner who claims title. The predominant system in the United States generally awards title to the latter in the event of legitimate claim. Thus, current owners frequently purchase title insurance to provide indemnification in the event of a loss. In contrast, the Torrens system awards title to the current owner, but provides for indemnification of any legitimate claimants. We evaluate these two systems and argue that if transaction costs are low, both promote efficient assignment of title (according to the Coase Theorem), but if transaction costs are high, the Torrens system is more likely to award title to the party that values it the most (namely, the current possessor).
Similar content being viewed by others
References
American Land Title Association. (1990).Fact Book. Washington, D.C.
Baird, D., and T. Jackson. (1984). “Information, Uncertainty, and the Transfer of Land,”J. Legal Stud. 13, 299–320.
Coase, R. (1960). “The Problem of Social Cost,”J. Law & Econ. 3, 1–44.
Gaudio, A. (1992).The American Law of Property. New York: Matthew Bender & Co., Vol. 3.
Janczyk, J. (1977). “An Economic Analysis of the Land Title Systems for Transferring Property,”J. Legal Stud. 6, 213–233.
Johnson, H. (1966). “The Nature of Title Insurance,”J. Risk and Insurance 33, 393–410.
Knetsch, J., and T. Borcherding. (1979). “Expropriation of Private Property and the Basis for Compensation,”University of Toronto Law J. 39, 237–252.
Merrill, T. (1985). “Property Rules, Liability Rules, and Adverse Possession,”Northwestern University Law Review 79, 1121–1154.
Nozick, R. (1974).Anarchy, State, and Utopia. New York: Basic Books.
Shick, B., and I. Plotkin. (1978).Torrens in the United States: A Legal and Economic Analysis of American Land Registration Systems. Lexington, MA: D.C. Heath & Co.
Smith, J.K., and R.L. Smith. (1990). “Contract Law, Mutual Mistake, and Incentives to Proceduce and Disclose Information,”J. Legal Stud. 19, 467–488.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Miceli, T.J., Sirmans, C.F. The economics of land transfer and title insurance. J Real Estate Finan Econ 10, 81–88 (1995). https://doi.org/10.1007/BF01099613
Issue Date:
DOI: https://doi.org/10.1007/BF01099613