As title agents review searches and prepare commitments for their transactions, there are oftentimes title issues that arise. Issues may include old mortgages that were never discharged or satisfied of record, tax sale certificates that were paid but never cleared from record, errors in land descriptions, etc.; however, it is possible that the current owner's policy in place may not have added the title issues as exceptions to the policy. In such cases, the title agent insuring a transaction can rely on the prior insurer's policy to issue without exception on the new policy. 

Prior to 2006, title companies had to request a letter of indemnity from the prior underwriter insuring the policy for each and every title issue. In 2006, all title insurance underwriters doing business in New Jersey entered into an Inter-Underwriting Indemnification Agreement. The agreement's purpose was to streamline the indemnity process between underwriters for specific issues and eliminated the need for a formal letter. In 2009, the treaty was revised, increasing the liability limit to the lesser of the face amount of the Prior Insurer's Policy or $1 mil- lion and expanding the coverage of issues that were included in the treaty. 

When seeking indemnification for one of the seven title issues covered by the treaty, the title insurance company that has issued the current policy in effect (known as the "Prior Insurer") must provide the title company that is insuring the transaction (known as the "Current Insurer") with a copy of the Owner's Policy that is still in effect, including schedules A and B of the policy. 

The seven issues included in the Indemnification Agreement are: 

• Judgments;
• Federal Tax Liens and other statutory or common law liens provided nevertheless that in the case of any lien which will not expire in a fixed period of time;
• Liens of Federal Estate Taxes, NJ estate taxes and transfer inheritance tax;
• Tax Sale Certificates, provided there are no pending or successfully concluding proceedings to foreclose, and further provided that contemporaneous notice is given to the Prior Insurer of the Current Insurer's intention to rely on the prior Insurer's policy in accordance with the terms of the agreement;
• Marital Rights arising in favor of the spouses of record titleholders;
• Legal Description errors such as lack of metes and bounds or filed map descriptions or scriveners' error contained in descriptions, provided that the land conveyed may still be identified from the documents themselves using recitals, tax information, etc.; and,
• Alleged or Actual Defects in judicial proceedings, provided they are not major defects

Title issues NOT included in the indemnity include any lien of record against the current owner, defects in a master deed, missing interests, defective bankruptcy or foreclosure proceedings, association dues,  violations of restrictions, pending judicial proceedings, insufficiencies of Power of Attorney, open property taxes and assessments, escrow compliance issues, etc. 

While the agreement only includes the seven title issues, a title insurance company can still request a letter of indemnity form the prior insurer for other types of issues. 

Before Title Insurance

Prior to title insurance, purchasing real estate was a much riskier venture. When land was purchased, buyers assumed it was free of any title rights, interests, liens or encumbrances that would interfere with their claim once the transaction was complete.

Historians believe the first legislation regarding ownership of real property was enacted in the English colony of Virginia in 1626. It required all land sales to be recorded within one year of the date of transfer in the General Court at Jamestown. As the recording system developed, property rights such as easements, liens, rights of way and other pertinent interests found their way into the recording of property sales. 

People known as "conveyancers" managed early land transactions and were recognized as the local authorities on real estate law, despite the fact they weren't lawyers. They were responsible for conducting searches of the land records for any interests that could create liability for the new owner. They would produce a signed description of the status of the title, certifying that the title was free and clear. Such certification protected the buyer, but the protection was limited. 

The risk of losing property due to unresolved issues was significant. If unresolved issues caused problems, the borrower or lender would have to prove legal negligence in order to collect damages from the conveyancer for his or her errors, which was difficult to prove. 

Watson v. Muirhead

The court ruled that the lien, and thus the sheriff's sale was lawful, and Muirhead was not held liable for misinformation because legal standard was negligence or failure to act with due care. Since Muirhead had relied on an attorney's opinion that the lien was invalid, he had used "due care", even though the  attorney was incorrect. 

The First Title Insurance Company

As a result of the court judgment and subsequent loss to the purchaser, in 1870, Joshua H. Morris and a group of conveyancers formed a group called the Philadelphia Conveyancer's Association. The Legal Gazette published an article that stated the organization's purpose was to set a standard of proficiency and professionalism amongst conveyancer's in Philadelphia.