If a person owning real property dies intestate, the property passes to his heirs by operation of law.
7. Examination of title by inquiry into public rec ords.—Inquiry into public records should be di rected first toward ascertaining the history of the property under consideration, and second toward as certaining whether any defects in or encumbrances upon the chain of title is disclosed in the history or abstract of title. Such inquiry is necessary since, ac cording to the principle of constructive notice, any one dealing with the property is charged with a knowl edge of the entire contents of the record.
A layman would find so many difficulties in mak ing an examination of title even where public records are kept systematically, that it is usually found nec essary to employ an expert for the purpose. Every thing affecting the property under examination found on the record must be noted and an abstract or his tory of the title made up. With the facts before him, the examiner gives his opinion upon the result. He should be able to state the names of the person or per sons in whom the title is vested, and existing defects and encumbrances, if any.
The law of real property is a technical and com plicated set of rules. To examine a title one be to some extent familiar with the principles of law applicable to the subject, must have some degree of experience with the effect of the records and must have the ability to handle and read the indexes to the rec ords.
An attorney who examines a title undertakes to apply his ordinary professional skill in the work, but he cannot guarantee the result. From each link in the chain of title, he must draw conclusions of fact and also of law. For instance, he may trace the title to A, and then find a deed on record from A to B. He is justified in assuming that the record is a copy of an authentic deed, and not of a forgery. Again he may find that B mortgaged the property to C, that C foreclosed the mortgage and that X, as ref eree in the foreclosure action, deeded the property to D. He must examine the record of the foreclosure and see that it was conducted according to the rules of law. The examiner is justified in his belief in the
authenticity of all of the facts shown on record, and if he draws an erroneous conclusion, believing these facts, and using ordinary professional skill, he incurs no liability to his employer. If a deed turns out to be forged or if some matter which affects the title but which is not apparent from the record, develops later, the employer the loss.
8. Title insurance.—Defects in titles often de velop years after the examination is made. One may think he/has the title and a good right to convey it, when upon a new examination something in the past history is disclosed which shows the title to be de fective.
Because of the fallibility of title examiners and of the dangers of defects in titles which are not dis closed or cannot be detected from the public records, the system of title insurance has been devised. Cor porations organized for the purpose and authorized by law, undertake to examine and guarantee titles. They use the best professional skill obtainable in do ing the work, and they issue a policy of title insurance to the owner or mortgagee, guaranteeing him against loss.
9. Policy of title insurance.—The policy issued by a title insurance company usually consists of four parts. The first is the agreement of insurance; the second is a schedule setting forth the details of the subject matter; the third is a schedule of the excep tions or limitations affecting the subject matter; the fourth is a statement of the conditions governing the relations between the company and the policyholder.
Under the agreement of insurance, the company, in consideration of the premium, guarantees to the in sured and to his heirs and devisees (not his assigns) that it will insure them against all loss or damage. Their payment for loss, however, shall not exceed the amount which the insured shall actually sustain by reason of any possible defect in the title. The prem ises are described in the schedule which is annexed to the policy, and any encumbrances or objections are listed.