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Article
Publication date: 10 August 2012

Michel Gendron and Michael Bourdeau‐Brien

The purpose of this paper is to use a stylised multi‐period model to describe the economic dynamics related to title risks and the implications of title insurance in the risk…

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Abstract

Purpose

The purpose of this paper is to use a stylised multi‐period model to describe the economic dynamics related to title risks and the implications of title insurance in the risk management decision process. Some fear that insofar as the quality of public records is concerned, the purchase of title insurance might induce a race to the bottom that would reduce the possibility to identify and correct title defects. This phenomenon is illustrated and the impact of different title risk management strategies and conditions under which recourse to lawyers is preferable to the purchase of title insurance are examined.

Design/methodology/approach

The main source of risk is the disparity between the characteristics of a property and what is written on its title. The choice of a title risk management strategy is modeled as the probability of hiring a lawyer versus that of buying insurance. Consistent with the literature, the deterioration of public records is made a function of the risk management decisions.

Findings

Results suggest that when public records are sound, the race to the bottom can be avoided and high title values maintained by adopting a risk management strategy based on recourse to lawyers; when public records are flawed, insurance companies may be in a better position than lawyers to maintain title values; switching back and forth from insurers to lawyers does not benefit title values.

Originality/value

The originality and the value of this paper is the study of title insurance which, while an important component of title risk management process, has received limited attention in the academic literature.

Details

Property Management, vol. 30 no. 4
Type: Research Article
ISSN: 0263-7472

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