From the blog post: ... ... ... ... (Spoiler: Abraham Lincoln. I think Patrick McKenzie often tries too hard to be clever.) ... ...
From the blog post:
Most people assume ownership is recorded in some sort of government database, in the same sense that your bank balance is recorded in some sort of bank database. If you assume this, you’re right… for many places in the world.
For example, if you wonder who owns a particular tiny sliver of Tokyo, you can hire a judicial scrivener to go ask the government, and in a fairly deterministic fashion they will bring you a piece of paper saying that the Legal Affairs Bureau’s records show one Patrick McKenzie as very definitely owning it. That piece of paper suffices as proof of title for almost all purposes in Japan. Courts, lenders, and the ward office will all treat it as one step below holy writ.
The United States, perhaps surprisingly, is not operationally capable of producing that piece of paper. There is no government body in the United States which will confidently say that, as of this instant, Patrick owns this property to the exclusion of all others. Serious professionals who work in or adjacent to the real estate industry understand this incapacity of the United States and organize their lives around it.
As a broad sketch of varied practice over the 50 states, the relevant government body (here, the Cook County Recorder of Deeds) does not record ownership but rather records certain private transactions. Current ownership is not an independent fact; current ownership is the sum of all compounding transactions since time not-quite-immemorial. (Cryptocurrency enthusiasts might see a parallel: blockchains typically don’t record balances. Software operating on top of the blockchain probabilistically estimates balances by being aware of all transactions that happened since genesis.)
...
Users of the database will infer that, since the last few entries in the database were that seller buying the property from someone else, recording a mortgage, and extinguishing that same mortgage on full payment, and there are no other recent entries, that I very probably own the property.
There is an important difference between “very probably owns” and “certainly owns.”
...
But we have computer systems these days maintaining the records, and also vast secondary ecosystems of data brokers who ingest public records at scale and collate them with other information about people, searchable by other identifiers. As a consequence of this, in Chicago (and many other American cities), if you know a homeowner’s name (or address, or phone number, or…) you can have the full text of their mortgage, address, purchase price, monthly payment, etc etc, with 30 seconds of effort. No login or reason is required.
Many people react quite negatively when they learn this. If you are currently reacting negatively, I express no judgment.
This strikes me as similar to many questions about privacy rights. The range of human preferences is wider than anticipated. Framing influences perception quite a bit (“Anyone on Twitter can figure out your children’s exact walk to school” sounds different than “Your property tax payment is a public record” despite being the same physical database entry). Our laws have (as a descriptive not normative statement) not been updated in the wake of technological progress.
And so, I pay a very boring company $300 a year for a two-page contract that makes them our trustee. They have that contract in a filing cabinet. It is (assuming competent execution, always a risky assumption in the real estate industry) not cross-referenced in any databases. You can get them to show it to you, but you’ll need a court order, and fighting that court order is basically their reason for existing.
Many people, when they learn about land trusts, immediately assume that something extremely hinky is going on. Not so much; this is an extremely common way for savvy people to own property. It is in no way a loophole. The same polity which told its elected representatives that it wants property records to be public also told its elected representatives that it wants to exempt the rich, powerful, and savvy from that requirement. (That is a commentary on the American political system, certainly.)
Anyhow, should you want to avail yourself of this the next time you buy property, just tell your real estate attorney “What’s the privacy option in this state? Land trust or something?” They do this all the time. Or you can choose to have your full-text mortgage publicly available and automatically imported into hundreds of data sets. Whichever you prefer.
...
Perhaps the digression about land trusts has helped convince you that, if someone tells you they own a property and want to sell it to you, that claim might be more difficult to verify than you’d naively expect. It is also a claim that can sometimes be falsified well after a transaction.
...
(If it sounds implausible that marriages are not trivially searchable: the marriage is equally legally valid if conducted overseas. For example, when an American marries a Japanese person in Japan, the right U.S. government agency to register that fact with is no one at all. My wife and I joke about our unlicensed marriage, but it is absolutely valid in the U.S., and rights under it are enforceable by U.S. courts, because of the principle of comity. Comity doesn’t care that your SQL query returned zero records.)
“Undiscovered marriage torpedoes a real estate deal after-the-fact” sounds far-fetched, I know, I know. Every real estate lawyer has variants of this story in particular and another few dozen with similar effect. Partially they’re deployed tactically to drum up additional work for real estate lawyers. And partly they’re only slightly fictionalized versions of real cases where the full details are recorded for posterity by court reporters. (In the category of particularly historically well-attested-to title disputes, a particular family lost their home three times due to title defects. The family was forced to migrate as a result of these disasters. The young son, perhaps scarred by them, later went on to practice law here in Illinois. He is better known for other work.)
(Spoiler: Abraham Lincoln. I think Patrick McKenzie often tries too hard to be clever.)
...
Title insurance has extraordinarily low frequency for insurance products. However, when it does pay, the severity can be very high. Title insurance defenders will tell you that the reason title insurance is expensive is because the insurance company is promising to literally buy you a house in event of a problem.
Title insurance defenders are dissimulating, though, because the actual loss ratio on title insurance policies is laughably low. This number is exhaustively tracked by insurance regulators, and floats around the 5% region. And so, of the $4,000 or so that I paid in title insurance, the underwriter expects to pay out $200 in losses.
...
The title insurance industry extracts a relatively small rake, hidden in the minutiae of a complex transaction that most legislators and regulators don’t truly understand. There is a strong, organized constituency in favor of that rake existing. That constituency is not shadowy forces in smoky backrooms. They are pillars of your community. They are your friends and neighbors.
From the blog post:
...
...
...
...
(Spoiler: Abraham Lincoln. I think Patrick McKenzie often tries too hard to be clever.)
...
...