What Is Chain Of Title?
Chain of title is the official ownership record of a property or asset. Chain of ownership gets its name from its sequential nature; a chain of title traces historical title transfers from the current owner back to the original owner. Due to their critical importance in establishing ownership of a property or asset, rigorous and accurate title records are generally maintained by a centralized registry or system.
Chain Of Title Explained
Chain of title has considerable significance in real estate. In a real estate transaction, the chain of title is researched on behalf of the buyer by a title company, which summarizes all title transfers and encumbrances in a title report. Title insurance is used by buyers to protect against financial loss ensuing from errors in the title report.
Various registration systems, such as the Torrens title system, have been developed to track the ownership of individual pieces of real property. In the United States, insurance companies issue title insurance based upon the chain of title to the property when it is transferred. Title insurance companies sometimes maintain private title tracking of real estate titles, in addition to the official records. In other cases, the chain of title is established by an abstract of title, sometimes, although not always, certified by an attorney.
Widespread lack of clarity in chain of title results from a 1995 decision by many lenders to rely on a third entity — a specific company, Mortgage Electronic Registration Systems (MERS) — to hold title nominally, in an effort to enable the buying and selling of mortgage liabilities without registration of changes of ownership with local governments. U.S. states have raised objections to this practice and even sued over it.
Chain of Title in Other Industries
While chain of title is most common in real estate, chains of title are also important for intellectual property, such as film and music, as well as for intangible property, such as farming or timber rights.
In the motion picture industry, for example, chain of title applies to the documentation that establishes proprietary rights in a film. Chain of title also applies to creative compilations in other fields, where many people have contributed to the project, thus acquiring authorship rights, or where materials were culled from many sources. Chain of title is extremely important to film purchasers and to film distributors, as it establishes the veracity of the owner's proprietary rights (or rights under license) in the intellectual property in a film, book or encyclopedia.