USA > California > Land in California, the story of mission land, ranches, squatters, mining claims, railroad grants, land scrip, homesteads > Part 14
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This "recording system" was the same as that in use throughout the United States. It had had its origin in colonial America and was therefore strictly a home prod- uct. It was the American attempt to meet a problem which in many other nations or in other times was taken care of through a "registration system" or through some other
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workable system by which landownership could be proved. In ancient Greece, for example, there was a period when the record of a mortgage was kept on a stone pillar placed on the property of the borrower, to give notice to prospective buyers.
The public recording of a deed or other document- under the theory of the American recording system-gives "constructive" notice of its contents. All persons are con- clusively presumed by law to have notice of instruments properly recorded, whether or not these persons have examined the public records. The county is the recording unit. Thus, a man buying land in Alameda County and receiving a deed, takes title subject at least to matters shown in the documents in the recorded chain of title on display in the office of the recorder of Alameda County. A document is "recorded" when, after being acknowledged or certified or verified, as may be required, it is deposited with the recorder to be transcribed by him in the proper book of records. After transcription, whether this is done by pen, typewriter, or camera, the copy becomes, so far as the public is concerned, the document itself. It is the re- corder's duty also to index each document. The recording system, accordingly, establishes legal priority of rights in land and, with its adoption in California in 1850, it be- came a vital factor in the buying and selling of land and in the preservation of essential data about landownership. Since 1850 county recorders' offices in California have been the chief source of information not only about trans- fers of land but also about mortgages, deeds of trust, con- tracts of sale, leases, subdivision maps, and a multitude of other documents or instruments which under the law may be recorded: declarations of homestead, notices of action, notices of completion, powers of attorney, assign-
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ments of various kinds, and agreements of one kind or another. The American recorder's copy has supplanted the Mexican alcalde's original.
Shortly after the organization of the state government in California, Congress provided for the survey of the public lands in California. This was an important step in making it possible to identify lands and to describe selected areas exactly, so they could be readily transferred by the United States, by the State of California or by individuals. The Act of March 3, 1853, provided for a surveyor general for California, authorized to survey pri- vate land claims, after they had been confirmed, and public lands.
The extension to California of the rectangular system of survey brought to this state the benefits of a system that had its origin in an ordinance sponsored by the Con- tinental Congress and passed in 1785. This had provided for the location of townships six miles square, each town- ship to contain thirty-six sections of one mile square. Townships, under this first ordinance, were laid out in ranges extending northward from the Ohio River. Eleven years later Congress made provision for the appointment of a surveyor general and the numbering of sections be- ginning with number one in the northeast section and proceeding west and east alternately through each town- ship. It was afterward directed that public lands be sub- divided into quarter sections. As a part of the system of rectangular surveys, principal meridians and base lines were established. These bear local names. The meridian lines extend north and south and the base lines east and west.
The Humboldt meridian governs in northern Cali- fornia, the Mount Diablo meridian in central California,
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and the San Bernardino meridian in southern California. Tiers of townships are arranged north and south of the established base lines. Theoretically each township con- tains thirty-six sections, but in many cases Spanish or Mexican land grants cut into the townships and, where this is the case, the sections or parts of the sections which fall in the ranchos are omitted from the government maps of the townships.
From 1850 to the present time the subdivision and resubdivision of California has proceeded at an ever- faster pace-under the urge of an ever-increasing popula- tion. It is beyond the scope of this book to give the history of subdivision in California. To do so would require an account of the laying out of every city or town or com- munity in the state-and many of them were started in the years 1846 to 1850-as well as of the innumerable later subdivisions and resubdivisions within these in- habited areas. It would require the retelling of city build- ing which spread from the region of San Francisco Bay, and its tributary rivers, throughout the state-in the north directed at first by the rise of mining districts and the expansion of lumber and farming, in the south, initially, by the awakening of pueblos and the stimulation of rail- road enterprise. The real estate subdivision, as we know it today, had its origin in the early years of the American period which began on July 7, 1846. It has had a flowering in each of the succeeding peak years, or boom years, of the major cycles in real estate sales activity. These high points have been, approximately, 1855, 1875, 1887, 1906, 1923, and 1946, or about twenty years apart-the real estate cycle itself averaging, as in the United States as a whole, about eighteen years. The maps recorded in the recorders' offices of the state tell the whole story. So, too,
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a trip throughout the state discloses that much of southern California and part of the San Francisco Bay region are becoming solidly built up "population areas," with town and country tending to merge through subdivision and common use. Subdivision has been engaged in by towns as well as individuals. This story of the buying and selling of California, until it is brought down to the twentieth century, is one of unregulated, uncontrolled cutting up and selling of land. In the greatest real estate boom in California history, that of the 1880's it was possible for a promoter to sit in his office, there prepare a map, with- out setting foot on ground, of some inaccessible mountain- top or of some worthless river-wash land which he owned, make his lots any size he wanted, record the map, and then sell. There was no official to say nay to any and all gullible comers.
Today the subdivider, the real estate broker, and the salesman toe the mark. Comprehensive laws control both the subdividing and the selling of land in the interests of the community and of all persons directly concerned. The activities of subdivider, broker, and salesman are defined and governed by the detailed provisions of the business and professions code of the state. Subdivisions are defined. Subdividers must meet the exacting require- ments of the state, the county, and the municipality. They must follow regulations of city engineers, county sur- veyors, planning commissions, and governing bodies. They often find it advisable to have federal agency,-such as the Federal Housing Administration-approval if lot purchasers can be expected to seek federally insured con- struction loans. No sales may be made until the real estate commissioner has been given full information about the new subdivision that is about to be placed on the market.
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This commissioner makes a public report of his findings and has the power to prohibit the sale or lease of lots or parcels if it is apparent that misrepresentation, deceit, or fraud of purchasers is involved.
The business of selling land in California is on a vast scale today. The number of real estate licenses issued dur- ing the peak year 1946-1947 totaled 70,662, as compared with the highest earlier total of 60,000 in the 1920's. New subdivisions launched during 1946-1947 and filed with the real estate commissioner numbered 1,777. These fig- ures are those of the state real estate division.
Some of the glamour may have been taken from the buying and selling of land in California by "subdivision map acts," "California real estate acts" and the establish- ment of a "state real estate division" and a "real estate commissioner," but a greater degree of safety for pur- chasers has been added. To be sure, the apparently in- evitable real estate cycle remains, and with it the same old opportunity to speculate, to make or lose fortunes in the land of California. Buying and selling California, a very old custom, will continue.
CHAPTER XVI
Insurance of Title
ONE OF the most important acts of California's first legis- lature, meeting at San José, was the adoption early in 1850 of the recording system. This system was to give Cali- fornia, which, under the Mexican regime, had been fa- miliar only with rather crude registration, the benefits of a time-tried American device that had proved helpful throughout the United States in safeguarding the owner- ship of land and in making land transfers easy.
The significant points about recording, how it estab- lishes legal priority of rights in land, and how vital a factor it was to become in the buying and selling of real estate in California, have been discussed in the preceding chapter.
Admittedly the public records system is an excellent device for keeping track of a multitude of interests in land. But, with increase in population and public offices, it becomes inevitably cumbersome. It does not provide machinery for the complete classification, according to
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land affected, or the interpretation, of the deeds and other documents that are daily recorded and transcribed in the recorder's office or of the day-by-day proceedings in the clerk's, the tax collector's, and numerous other govern- mental offices. It is apparent, too, that land titles are affected by many factors outside the province of the public records system of a county, such as actual occu- pancy of land by an individual who holds an unrecorded · deed, lease, or contract of purchase.
Since the public records system could not meet all the needs of the public for specific title information, there arose in California, as elsewhere, auxiliary private agen- cies which took over the job of searching, classification, and interpretation. These agencies can be listed in order of development: the conveyancer; the abstracter; firms of attorneys and corporations equipped to furnish certifi- cates of title; and, finally, title insurance companies.
Today there are large and ever-increasing populations, a multitude of public offices, and a myriad of laws and regulations-city, county, state or federal-that affect the holding of land. Hence the business of furnishing infor- mation about landownership and of insuring land titles has become big business. Corporations engaged in this business operate under the insurance laws of the state and are known as title insurance companies. Their serv- ices are more widely used in California than in any other state. Their activities are accepted as helping to make land a safe commodity to buy or sell. Accordingly, when a Californian buys a home, an apartment house, an office building, a factory, an oil well, or even a vacant lot, he first satisfies himself, through the medium of such a com- pany, that the seller's ownership or title is clear of the claims of other persons. When a bank, a savings-and-loan
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association, or an individual loans money, with land as security, this lender requires evidence that the landowner has good title and relies upon the findings of the title insurance company as final proof. Even the government- whether city, county, state or federal-must know all about the ownership of the land it buys, condemns, or takes over and, in California, is in the habit of largely relying on the title company to segregate and interpret the public records and to insure the correctness of its findings.
The story of the rise of these private agencies auxiliary to the public recording system, culminating in Califor- nia's modern title insurance companies, is a part of the title story of the state.
The directory of San Francisco issued for the years 1852-1853 carries this advertisement of Theodore Payne & Co .: "Real Estate Business in all its branches, for the conducting of which they esteem themselves peculiarly qualified by having given it their especial attention for over two years past, and made themselves familiar with all questions affecting titles, etc., etc." The directory of the same city for the year 1856 lists four "searchers of records and conveyancers." They were Joseph Clement, C. V. Gillespie, Gunnison & Parker, and G. W. Waugh. Gunnison & Parker who were "attorneys and counsellors at law," advertised: "We have prepared books containing a chain of title to every lot of land in the City and County of San Francisco, with maps of each subdivision and owners. We will give Abstracts of Title at the Shortest Notice." Waugh claimed to be a "Searcher of Records and Examiner of Titles," asserting that he had "compiled more information, and is better equipped than any man in the City in reference to the Validity of Titles in the
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City and County of San Francisco." Gillespie announced himself as the "first notary public approved in Califor- nia-commissioned July, 1848." He became associated with Giles H. Gray and, in the 1860-1861 directory of San Francisco, from their offices on Washington Street, "adjoining the Hall of Records," they advertised them- selves as: "Examiners of Deeds, Searchers of Records for all incumbrances including Judgments and Taxes" and as "familiar with Titles to Real Estate in this City and County since February 1848."
From these early advertisements it is apparent that real estate men, notaries, and attorneys were taking care of the title needs of San Franciscans in the early years after California had organized itself as a state and had adopted the recording system. The transition from "conveyanc- ing" to "abstracting" was already under way. The early- day conveyancer in California was either an attorney or a layman and, like his predecessors in other states, handled real estate transactions by checking a few records, draw- ing papers, and giving oral or written opinions that the title was clear. With the expansion of public records and of the business of conveyancing, the conveyancer or title lawyer often delegated the job of assembling title infor- mation to subordinates. These latter became skilled as abstracters, finally establishing offices of their own and submitting the results of their searching to attorneys for written opinions before advising customers.
Thus there came into use the "abstract of title" which was simply a written history of the recorded transactions affecting a piece of land. It consisted of summaries of each deed or other instrument in the chain of title, certified to by the abstracter as being complete up to a certain date, and sufficiently detailed so that an attorney could check
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it through and from it alone express his opinion in writ- ing as to who owned the land and whether or not there were defects in the title or incumbrances. The abstract of title did not originate in California, for it had been used in the first quarter of the nineteenth century in other states. Throughout California it came to be used almost exclusively in real estate transactions, with the abstract business getting an early start in the larger and older county seats such as San Francisco, Sacramento, San José, Monterey, Los Angeles, San Bernardino, and San Diego. Early-day land transfers were often conducted by two attorneys: one representing the seller and prepar- ing the abstract, the other representing the buyer and passing on the abstract. Abstracters, individually, or, later, organized into corporations, operated in each county seat where there was enough real estate business to justify their existence. The offices of abstract companies were usually as close to the courthouse as they could get and close also to the attorneys who wrote the opinions. In many cases the attorneys were in the offices, as staff members.
While the use of the abstract of title was expanding in California, with actual abstracting being done by both laymen and attorneys, there was another phase of the "title business" that remained exclusively in the hands of attorneys. The owners of ranchos whose ownership originated in the Mexican or Spanish period, as well as pueblo authorities, had to prove their claims before the United States Land Commission that had been provided for by Congress in 1851 and usually, also, before the courts to which board decisions were appealed. As a re- sult, there grew up in California, and especially in San Francisco, where most of the board meetings were held,
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firms of attorneys that specialized in Spanish and Mexi- can titles. It was part of their job to submit transcripts of all the evidence in Mexican and Spanish archives that would prove ownership, as well as to secure witnesses, old- timers, and experts who could give convincing testimony bearing upon ownership. The transcripts usually in- cluded copies of expedientes, or land-grant files, obtained from the archives that had been assembled and deposited in the Surveyor General's Office in San Francisco, and were actually in the nature of abstracts of title. The han- dling of rancho titles made experts out of a large number of attorneys. Their title activities extended later to other fields, such as the public lands of the United States, where, in competition with land brokers and land agents, they helped purchasers, preëmptioners, homesteaders, squat- ters, miners, and others to get or prove ownership. "Spe- cial attention to business in the United States Land Of- fice" was a typical advertisement of these attorneys.
Although the abstract of title is almost never used in California today it is still in wide use in other parts of the United States, especially in the Middle West. In Cali- fornia it gradually gave way to the "certificate of title," a short cut for those buying and selling land. The abstract was often ponderous-one covering the whole of Rancho San José (Pomona Valley) in Los Angeles County occu- pied thirty-seven large volumes-and the only part that was of importance was the attorney's opinion attached. It was only logical, therefore, that the opinion should be separated from the abstract, written as a complete state- ment, and then handed to the seller or buyer. The ab- stract itself, that is, the summaries of the recorded documents in the chain of title, remained in the ab- stracter's office, as a record of the searcher's work.
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Certificates of title, giving, in one or two sheets, the net results of an examination of title, did not have their origin in California, but, since they were a natural outgrowth of the abstract, their use in California began as early as the 1870's. One issued at Los Angeles on January 23, 1875, from the "Office of Judson and Gillette, Examiners of Titles," was written informally on a letterhead bear- ing the names of "A. H. Judson, Att'y at Law" and "J. W. Gillette, County Recorder." It stated briefly:
The title of N.E.1/4 S.E.1/4 Sec. 16 Tp. 2S. R.13W. is vested in N. I. Orme, discharged of any & all liens or incumbrances. The only defect we discover is in the signature of Mrs. Schluter to the deed to Orme, the name 'Manilla' having been substi- tuted for 'Manuella' (See Book 28, p.9). As names are entirely different we would suggest a rectification of the error by a new deed from Mr. & Mrs. Schluter.
Incidentally, the firm of Judson and Gillette, later to become Judson, Gillette, and Gibson, were pioneers in the Los Angeles title field, ultimately forming there a corporation-the Abstract and Title Insurance Com- pany, incorporated in November of 1886-to carry on their work.
Brief statements of the kind quoted gave way to formal certificates of title prefaced by a statement such as this:
From examination of the records of Los Angeles County, Cali- fornia, in the offices of the County Recorder, County Clerk, County Auditor and County Tax Collector thereof, concern- ing the title to that certain real property in the County of Los Angeles, State of California, hereinafter described, The Abstract and Title Insurance Company of Los Angeles hereby certifies that the title thereto is now vested as follows.
By the 1880's the firms of attorneys that had been exam- ining titles were incorporating, their certificates of title
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and abstracts of title being issued by corporations instead of by individuals. In these corporations were combined the functions of searcher, abstracter, and attorney. The real estate boom of 1887 gave great vogue to certificates of title and to the incorporated "title business." On the other hand the certificates themselves, one- or two-page documents telling everything a purchaser need know about his property, helped to make the fast "turn-over" in real estate possible.
It was in the 1880's that the present-day, large-scale business of furnishing information about land titles and of insuring such titles began to take shape. At that time the certificate of title-with coverage limited to public rec- ords-began to give way to "title insurance" which offered a buyer an insured statement of the condition of the title to the property he was buying.
In February of 1886 the California Title Insurance and Trust Company, with offices in San Francisco, was incor- porated with capital stock of $250,000.00, and issued its first policy of title insurance on March 17, 1887. At the same time it distributed a pamphlet on the objects, plan, and advantages of title insurance as compared with ab- stracts of title. Title insurance was offered as a means of facilitating the transfer of real estate and at scheduled rates, based on the amount of insurance. The pamphlet was adorned with pungent paragraphs such as: "A bad title may appear perfect. The record does not show if a deed is forged or the act of an insane person." Again: "It is not safe to assume a title good because you are familiar with it. Good sense is not always good law." Or: "All men are fallible. The best of searchers and attorneys may err. A responsible guaranty is better than an opinion." Finally, quoting from Macbeth: "I'll make assurance
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doubly sure, And take a bond." This company, a pioneer in the "policy" field in this state, now carries on business as the California Pacific Title Insurance Company, with branch and affiliated offices in various cities of California.
In that same year of 1887 California corporations in the business of insuring titles to real estate were given specific recognition in the civil code of the state, and a new section required them to set apart annually a certain percentage of their premiums as a surplus fund for the security of policyholders. The office of Insurance Com- missioner had been created earlier, in 1867, and corpo- rations doing any kind of insurance business were obliged to obtain a certificate of authority. In 1907 the legislature defined the various kinds of insurance, including title insurance, and in 1935 all the insurance provisions of the civil and political codes were incorporated in one new code, the insurance code. Today a title insurance com- pany organized in California must have a minimum capi- talization of $100,000 and must make an initial deposit with the proper state official of $100,000 in cash or ap- proved securities. It must also set apart annually, as a "title insurance surplus fund," a sum equal to 10 per cent of its premiums collected during the year, until this fund equals 25 per cent of the subscribed capital stock of the company. This fund-very substantial in the case of the larger and older companies-is maintained as a further security to the holders and beneficiaries of policies of title insurance.
Title insurance did not have its origin in California. The first use of title insurance was in Philadelphia in 1876. A Pennsylvania court, a few years earlier in the case of Watson v. Muirhead, had found a certain convey- ancer and abstracter not liable for his failure to include
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certain money judgments in an abstract, though these were actually a lien on the particular parcel of land. This incident so disturbed Philadelphians that, when a real estate boom began, as a result of the approach of the Cen- tennial Exposition, a group of conveyancers took decisive action. The outcome was the passage by the Pennsylvania legislature of a measure permitting a corporation to en- gage in the business of insuring titles. Then in 1876, the Real Estate Title Insurance Company was organized to insure "purchasers of real estate and mortgages against loss from defective titles, liens and incumbrances." Later this corporation was merged into the Land Title Bank and Trust Company, which is the oldest title insurance company in the world.
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