An Economic Analysis of the Land Title Systems for Transferring Real Property

from Chicago Title and Trust Company $64.31 Report from real estate inspector $20.00 Examination of abstract by the land title court $125.54 Published notice of intended registration $19.30 Official certificate $2.37 Lawyer's fee $28.80 Total cost of registering a title: $260.32 of legally valid claims that have been asserted against it. Each transfer of ownership and every property right must fulfill certain statutory conditions to be legally valid.23 If the judge has any difficulty evaluating these, owing to a lack of either information or legal precedent, he holds a court session. The results of this judicial process are summarized in a decree which states the identity of the current legal owner as well as a description of the validated claims. The decree is sent to the Registrar's Department, where it is typed onto a document called an "Official Certificate," and the property is henceforth considered to be in the Torrens system.24 Additionally, the registration process may involve expenses for lawyers' services (for helping the applicant fill out forms and/or for presenting evidence in court). The estimated average cost for the registration of a parcel of property from the recording into the Torrens system is $260.32, consisting of the following expenditure items, as shown in Table 4: an abstract from Chicago Title and Trust Company, a report from a real estate inspector, an examination of the abstract by a Land Title Court, a published notice of the intended registration, the typing of the decree onto the Official Certificate and teh lawyer's fee. These estimates were derived from data on the expenditures by and for Chicago Title and Trust Company, real estate inspectors, land title courts, the Registrar's Department, and lawyers. The sources of data for the above institutions and the derivations of their costs are detailed in Appendix B. All data were deflated to 1967 prices. Although the above estimate of registration cost is a point estimate, it is plausible to assume that additional registrations could be processed at approximately the same unit cost. This requires that the additional inputs be available without increases in their unit costs and that the production process be one of constant returns to scale. The first condition appears to be a reasonable one in view of the fact that Chicago Title and Trust Company has the facilities for processing a large number of abstracts for property 23 See Ill. Ann. Stat. ch. 30 ? 1-39 (Smith-Hurd 1969 & Supp. 1976). 24 This certificate is the centerpiece of the Torrens system, since it provides a summary of ownership and all other legally valid claims for that parcel of property. Id. 73-90. This content downloaded from 157.55. 39.249 on Wed, 03 Aug 2016 04:25:59 UTC All use subject to http://about.jstor. org/terms ANALYSIS OF LAND TITLE SYSTEMS 223 being registered. Furthermore, there appear to be no bottlenecks in setting up more land title courts-there is an ample supply both of qualified lawyers available to fill additional seats on the bench and of courtroom and office space. The second condition is that as additional inputs are used, the increase in output is at least proportionate to the increase in these inputs. This also appears to be a plausible condition, since parcels are registered individually; hence there are no interdependencies among individual parcels of property or between the Abstract Department and the land title courts which may cause decreasing returns to scale. Therefore, the cost per registration should continue to be approximately $260, as projected in Figure 1. The least costly method of switching property from the recording into the Torrens system is to switch a parcel of property only when its title is being transferred in the normal course of events; hence, the registration process is regarded as automatically involving such a transfer.2s Since the registration process thus occurs only when the title is being transferred, the cost of transferring that title in the recording system that would otherwise have been incurred, about $198, must be taken into account. Hence, the cost of switching the property from the recording into the Torrens system is the difference between the, cost of registering the property into the Torrens system and the cost of transferring its title in the recording system, approximately $62 per registration. Using some simplifying assumptions, the number of new registrations in any given year can be predicted, to a first approximation, from available data. First, it is assumed that the annual number of title transfers will continue at the current average rate of 62,226 per year; thus, upon implementation of automatic registration, this number would be registered in the first year. A second assumption is that of the 62,226 title transferred in a given year, 30% had been transferred within the previous five years. 26 Thus, in the sixth year after adopting the Torrens sytem, 30% of the title transfers would be transfers within the Torrens system, while the remaining 70% would be new registrations into the Torrens system. Finally, the assumption is made that all of the property in the recording system is transferred at least once within a 40 year period, so that all the property currently in the recording system, 1,025,000 parcels, is registered into the Torrens system by the 40th year.27 Using the above assumptions, the number of titles switched into 25 This is the method most commonly used in Cook County; however, there are several variations used elsewhere: see David Jackson, Registration of Land Interests--The English Version, 88 Law Q. Rev. 93 (1972); and E.K. Phillips, The Development of Land Titles Systems in New Zealand and the Australian States, [1969] N.Z. L.J. 608. 26 This estimate is based upon the observations of Quintin Johnstone & Dan Hopson, Jr., supra note 17, at 288. 27 The need to register 1,025,000 parcels embodies the conservative assumption that each legally defined parcel of peoperty (size 50' by 150') must be registered separately and that there This content downloaded from 157.55. 39.249 on Wed, 03 Aug 2016 04:25:59 UTC All use subject to http://about.jstor. org/terms 224 THE JOURNAL OF LEGAL STUDIES the Torrens system in each year "t" can be estimated by solving for the parameters of a cubic function. The relationship of the number of new registrations into the Torrens system and the number of transfers within the Torrens system for the various years were derived using the above formula and are shown in Figure 2.28