Land Registration in the USA, France and the Netherlands: A Comparative Analysis

Land registration systems prevalent in the world are generally categorized into two broad categories viz. Deed Registration System and Title Registration system. In a previous article on this blog ‘Land Registration Systems: A Global Perspective’ the basic features of these two systems were described. In many countries including India, switching over to the title registration system from the existing deed registration system is a matter of fierce debate. It is very difficult to say which system is better because both systems are widely used in developing as well as developed countries around the world. While debating over the relative merits of two systems, one should not lose sight of the time, effort and resources involved in switching from one well-established system to another. The title registration system is based on legal principles which are very different from those in the deed registration system. The new legal regime required for the title registration system may take a long time to fully establish itself in a new country.

On the contrary, the existing system can be reformed promptly with much less effort. Many countries have reformed their deed registration system successfully. In this article, a comparative analysis has been done of the deed registration systems of three countries viz. the USA, France and the Netherlands. All three are developed economies with well-functioning land markets. Other countries contemplating switching over to the title registration system may take a cue from them and introduce reform in their deed registration systems as per their requirements and socio-political conditions.

Deed Registration System in the USA

Most of the states in the USA follow the deed registration system which is called the Recording System there. The first Recording Act was enacted in Massachusetts in 1640 which introduced deed registration in the American continent with the objective of avoiding fraudulent conveyances[1]. All the states have their own recording laws laying down the legal requirement of registration, procedures for the presentation of documents in the registry and manner of keeping the record of registered documents for future reference. Normally, deeds related to sale, mortgage, long-term lease, trust, easement rights and other such instruments affecting rights in the property are required to be registered. The priority of a registered document in comparison to an unregistered document differs from state to state.

A prospective buyer gets a title search made to examine the past records of a certain length of time, usually sixty years, to ensure that after the proposed transaction a good title will be transferred to him. This process involves two professionals; an abstractor and a qualified attorney. An abstractor searches through all the records of the registry and compiles details of all the transactions related to the property proposed to be transferred in the form of an ‘abstract’. Based on this abstract, the attorney gives his professional opinion on the legality of the title of the seller and any possible risk of litigation in the future.

Indexes Maintained by the Registry

The ease and accuracy of a title search depend upon the indexes maintained in the registry. In the eastern states of the USA, the index is based on the names of the parties involved in transactions and is called the ‘grantor-grantee index’. In this index, transactions are noted against the names of the grantors (the one who transfers rights in the property) arranged alphabetically with details like the name of the grantee (the one who acquires rights), document reference, description of the property, etc. There is another index in which transactions are noted against the names of the grantees arranged alphabetically. As transactions are not indexed with reference to the attributes of individual properties, it is a tedious job to trace all the transactions relating to a property through the granter-grantee index. This process is amenable to errors also.

The western states, as per their laws, require the maintenance of parcel-based or tract-based indexes also in addition to a grantor-grantee index. The property is identified on a map which is mostly a map maintained by the tax authorities and the deed registration number and other details are linked to this geographic location. It is much easier to search titles through a tract-based index because all the transactions related to a property can be found in one place. However, as the USA does not have a uniform system of identification of the geographic location of a property, it is very difficult to maintain tract-based indexes. The result is that despite legal provisions, tract indexes are not maintained in most states.[2]

Failed Experiment with Title Registration

From 1895 to 1917, nineteen states enacted title registration laws. It was introduced as an optional system of registration alongside deed registration with the expectation that landowners would come forward to register their titles to take advantage of a secured title under the new system. However, it was later experienced that this expectation was ill-placed and people generally preferred deed registration over title registration.

Many states have since repealed title registration laws. At present, only eight states have title registration laws in place. Among them, only Minnesota, Massachusetts and Hawaii follow this system in all the counties alongside deed registration. In the other five states, viz., Colorado, Georgia, North Carolina, Ohio and Washington, this system exists only in a few counties each[3]. Thus, the experiment with the title registration system has not been successful in the USA.

Title Insurance

Title insurance is an innovative practice to provide the security of title to the buyer of a property. At the time of purchase of a property, a buyer normally buys a title insurance policy which insures him against any future loss due to any defect in the title of the seller or any undetected encumbrance on the property. Normally banks that finance the property also take a similar policy to protect their loan in case of any dispute on the property arising in future. In the case of these policies, a one-time premium is payable at the time of purchase and the insurance coverage lasts till the property is owned by the person who purchased the policy.

Difference between Title Insurance and other kinds of Insurance

Title insurance is a unique product which differs in many respects from other kinds of insurance like life insurance and casualty insurance. While other kinds of insurance indemnify an insured against future events, title insurance policies compensate a purchaser and a lender against the losses caused by title defects having their source in past events.

Before issuing a title insurance policy for a property, the insurance company searches past records to detect any defect in title or any encumbrance on the property. If any such thing is found, the insurance company advises the buyer to take the necessary steps to remove the defect. A policy is not issued until all the defects in the title of the property detected at the time of purchase are removed. Thus, title insurance works on the model of ‘risk elimination’ rather than a model of ‘risk assumption’ in other kinds of insurance.

Title insurance in the USA is popular because of deficiencies in the system of maintenance of records of registration. Even after a thorough search of records by a professional abstractor and the opinion of a qualified attorney, the buyer and the lender are not sure of the transfer of a defect-free title of the property. A title insurance policy assures the buyer to compensate for any loss in future due to any undetected defect in the title. Thus, title insurance in the USA performs the same function as is performed by government-sponsored indemnity or insurance funds in the title registration system of Australia and England.

Title Plants

As has been discussed earlier, in most of the states of the USA, only grantor-grantee indexes are maintained. It is very cumbersome to make an accurate title search through these indexes. To reduce their risk, title insurance companies rely more on the records maintained by them or other private companies. Such records are maintained in a unique establishment called ‘Title Plant’ which is a compilation of all documents that may impact the title to properties. These records include files, documents, maps, deeds, etc. filed with the registrar, courts and tax authorities. A title plant also contains prior abstracts and opinions of attorneys regarding properties. Property records in a title plant are indexed by the geographical location of a property which makes it easier to search for the title of a property.

These title plants may be owned by the title insurance company or by a separate company. Title plants acquire details of all land transactions from the office of the registrar and rearrange them as per the geographical location of the property. They keep these records updated all the time by taking necessary abstracts from the office of the registrar every day.

Marketable Title Acts

The enactment of Marketable Title Acts is an important reform introduced in the USA to improve the operation of the deed registration system. About a third of the states have enacted this kind of legislation. A Marketable Title Act aims to eliminate certain old interests in the property by putting a time limit on their continuation if not asserted as per provisions of the Act. Such old interests may not appear on the record of the registry at all and therefore would not be discovered by a title search. With the Marketable Title Act in place, a buyer is assured of a good defect-free title if nothing adverse appears in the past records of the period, mostly forty years, specified in the Act. [4]

Deed Registration in France

The requirement of registration of land transactions was first introduced in France in 1798 which was later abolished by the French Civil Code of 1804. The registration was reintroduced in 1855 with the enactment of the Land Registration Act.

The first step in carrying out a sale transaction is the signing of a preliminary agreement by the seller and the buyer. Normally a part of the sale consideration is exchanged at this stage. After this, a notary is engaged by the parties to prepare the sale deed. He completes verification of title, mortgages, easement rights, planning restrictions, pre-emption rights, etc., before preparing the sale deed to be signed by the parties and witnesses. In this process normally the chain of previous owners for the last thirty years is traced.[5]

The institution of the notary in France is considered very reliable and offers adequate security of title to the buyer. A notary is responsible for searching the status of the property in the records of the land registry to ensure that no fact goes undetected which may affect the title of the buyer after the sale. In the case of any lapse on this account, he can be sued by the parties to compensate for any loss.

To prevent any ambiguity a deed is required to be written in standardized formats as prescribed in the law. On registration, one copy of the deed is bound in the publication register and the original is returned to the applicant with the date of filing and reference number of the registry.

Registry Liable for Incorrect Information

The records of the land registry office are accessible to the public. On the application of a person who shows his legitimate interest in a property, the registry is obliged to provide all the information relating to the ownership and other rights on that property. The registry is also responsible for any loss suffered by any person due to incomplete or incorrect information provided by the registry.

Effect of Registration

In France, the transfer of property is completed as soon as a deed is executed by the parties. Registration is required only for enforceability against third parties.[6] As is the practice in most countries following the deed registration system, the registrar only examines the formalities of registration like proper execution, identification of parties, payment of registration fee, etc., without examining the validity of rights involved in the transaction. The registration only assigns a priority to the transaction to resolve any dispute when more than one conflicting transaction related to the same land is executed. In the case of two competing registered deeds in respect of the same property, priority is decided according to the date of registration, irrespective of the date of execution.

Cadastre

France like most of the countries of continental Europe has a long history of maintaining cadastre for the purpose of assessment and collection of tax on land. It is maintained by the General Tax Directorate of France. The cadastre includes, for each property, a cadastral map, cadastral identification number, area, address, details of the owner and the record of successive transactions in the property.[7] It is open to the public for inspection and obtaining copies.

Property Boundaries

The quality of cadastral maps in France is inadequate to determine the precise boundaries between land parcels. Therefore, public authorities do not demarcate legal boundaries between private properties. In the case of a dispute on this account, owners hire a qualified private surveyor to fix the boundaries. If the owners agree among themselves on the boundaries fixed by the surveyor, they sign an agreement to this effect; otherwise, they have the option to settle the matter in the civil court.

Real Estate File

A major drawback of a deed registration is that rights are not recorded with reference to a uniquely identified property. This makes searching for the status of a property very cumbersome and time taking. In the USA, this problem has been solved by private Title Plants and title insurance agencies. France has overcome this drawback by introducing a new document in the land registry called the ‘real estate file’. The introduction of the ‘real estate file’ in 1955 was a major reform which has greatly improved the operation of the deed registration system of France. In this document, details of all the right-holders and transactions are mentioned against a uniquely identified property. Each property is described as per its description in the cadastre.

Cadastre and Real Estate File in Conformity

The cadastre and the real estate file though maintained by different authorities are kept in correspondence by regular exchange of information. The parcel reference of a property in the real file is compulsorily based on the cadastre and ownership information in the cadastre is entirely sourced from the real estate file. However, a cadastre may not always show the up-to-date status of the ownership and other rights on the property, the authentic source of which is the real estate file only.

Deed Registration in the Netherlands

The land registration system of the Netherlands is largely based on the French system. As in France, deeds related to transactions in the land are registered in the registry, and maps linked to other attributes of land are maintained in the cadastre.

To provide enhanced security of title to the land owners, many modifications have been introduced in the system of registration. Due to these modifications, the Dutch system is sometimes referred to as a ‘semi-title system’.[8] Instead of going into the procedural details of the Dutch system which is largely similar to the deed registration system of France, reforms made in the system will be described here.

Single Agency for Deed Registration and Cadastre

In every deed registration system, an index of registered deeds is created to facilitate investigation into the property owner’s title. In such an index, transactions are arranged as per the names of the sellers and buyers. From this index, it is very difficult to ascertain rights on a piece of land. In France, this problem has been solved by creating a real estate file in which rights are recorded against uniquely identified properties. The Netherlands has gone a step further in this direction. In 1927, a single officer was made responsible for the register of deeds and the cadastre. The preparation of a separate index by the registrar was also discontinued. Now the cadastral register functions as an index for the land transactions registered in the registry. This step has ensured complete correspondence between the cadastre and the registry. [9]

Registration Mandatory for Transfer of Title

Normally in the deed registration system, the title is transferred when a valid contract is executed between the parties and consideration is exchanged. The registration of the deed is required only for its enforceability against third parties. However, in the Netherlands, the title is not transferred until the deed is registered in the registry. But registration of the deed still does not guarantee the title. In other words, the registration of the deed is one of the necessary but not the only conditions of the transfer of title.[10]

Security of Title of a Bona fide Buyer

In a conventional deed registration system, registration of a defective deed does not transfer ownership. Because of this legal position, a buyer investigates all the previous deeds to ensure that there is no defect in any of them which may create uncertainty regarding his title. In the Netherlands, the deed registration law has been modified to give protection to a third party who has acquired a property in good faith relying on the last deed registered in respect of that property. The new Civil Code in 1992 provided that ‘if a seller’s right is defective and the buyer has sold to a third person who is in good faith, the third person keeps the property.’[11] This provision, with certain limitations, provides good security of title to a bona fide buyer relying on the records of the registry. Because of this provision, a notary in the Netherlands normally investigates only the last deed instead of screening all the deeds till a good root of title is obtained which is the practice in France and the USA.

Liability of Government for Loss to True Owner of Property

In the Netherlands, while the security of title is provided to a person who buys a property in good faith, the true owner who loses his right because of this law is also not left unprotected. The government is liable to compensate a true owner in cases where a loss is caused to him without his fault. Similarly, The Cadastral Agency is also liable for its mistakes causing loss to a person.[12]

Registrar Examines Validity of Deeds

In the deed registration system, the registrar plays a passive role and does not investigate the legal validity of the contents of a deed. He is mandated to register any deed presented to him if it fulfils the procedural and legal requirements. It is for the parties to investigate the validity of the title before entering into a transaction. In the Netherlands, without changing this legal position substantially, the registrar has been authorized to inform the parties if he thinks that a seller does not have a valid title or is not authorized to transfer the property. In such cases, the registrar first informs the notary, who in most cases withdraws the deed submitted by him on behalf of his client. In the unlikely event of parties insisting on registration of such a deed, the registrar is obliged to register it. However, the registrar can again put an objection at the time of giving effect to this transaction in the cadastre.[13]

After inheriting a conventional deed registration system from France, the Netherlands has constantly introduced new procedures and practices to improve the system to provide better service to the people. The deed registration system of the Netherlands is ‘supporting an active land market, with an acceptable level of security’. In 1950 the Dutch parliament, decline a proposal to introduce the title registration system and held the opinion that the ‘system functioned so well in practice that the law did not need to be amended extensively.’[14]

Conclusion

The analysis of three countries in this article establishes that the security of land titles can be enhanced in a deed registration system by making appropriate modifications in law and procedures. An important learning from this analysis is that there can be different approaches for improving a registration system based on the structure of law and administration and requirements of a country. A legal system can not be imported like a technology. It is best to allow the law to evolve with the changing needs of the time in a country. An attempt to impose an alien law on a country is likely to meet the failure.

Endnotes

[1] Simpson, S. Rowton. Land Law and Registration. London: Surveyor’s Publications (part of the Royal Institution of Chartered Surveyors), 1976, p. 96 [2] Barnett, Walter E. “Marketable Title Acts: Panacea or Pandemonium” Cornell Law Review 53, no. 1 (1967): 45-97 p. 51 [3] Agarwal, B. K. (2019). Land Registration Global Practices and Lessons for India. Pentagon Press LLP. [4] Barnett, Walter E. “Marketable Title Acts: Panacea or Pandemonium.” Cornell Law Review 53, no. 1 (1967): 45-97 [5] Glok, stephane. Real Property Law and Procedure in the EU—National Report France. European University Institute, 2016. [6] Glok, stephane. Real Property Law and Procedure in the EU—National Report France. European University Institute, 2016. [7] Gil, Stéphane. “The French Land Administration.” Permanent Committee on Cadastre in the European Union, 2002. [8] Louwman, Wim. “Advantages and Disadvantages of a Merger Organisation: The Case of the Kadaster—Netherlands.” 2017 [9] Willem Jan Wakker, Paul van der Molen, Christian Lemmen. “Land Registration and Cadastre in the Netherlands, and the role of cadastral boundaries: The application of GPS technology in the survey of cadastral boundaries.” Journal of Geospatial Engineering (The Hong Kong Institution of Engineering Surveyors) 5, no. 1 (June 2003): 3-10. [10] Kadaster, Netherlands. “Land Transaction and Registration Process in the Netherlands.” IPRA-CINDER, International Centre for Registration Law. [11] Louwman, Wim. “The Integration of the Cadastre and Public Registers in the Netherlands.” Permanent Committee on Cadastre in the European Union. [12] Hendrik Ploeger, Aart van Velten and Jaap Zevenbergen. “Real Property Law and Procedure in the EU-Report for the Netherlands.” European University Institute, 2016 [13] Hendrik Ploeger, Aart van Velten and Jaap Zevenbergen. “Real Property Law and Procedure in the EU-Report for the Netherlands.” European University Institute, 2016 [14] Zevenbergen, Jaap. System of Land Registration, Aspects and Effects. Netherlands Geodetic Commission, 2002. ,