I thought that there was only a small risk of defective title in the art world?
In the art world, the title risk is different in character and complexity than in the real estate industry, where in the United States nearly all 50 states regulate repositories of local real estate records and title insurance has been sold by insurers for more than 125 years.
The art market title risk is a low frequency but high severity risk that crosses all genres and periods and impacts all industry participants.
The reason is buyers and their advisors routinely cannot find out who owns the art or collectible offered for sale. Historically, the art market has always considered this information to be confidential, and the true owner is generally not the art dealer or gallery offering the work for sale. Because buyers often do not know who owns the work, buyers cannot begin to manage the ownership risks.
Even in the unusual case where a buyer learns the identity of the current owner, (assuming the art is not being sold from the artistís studio) each prior owner most likely did not know who owned the work before them, making it very difficult to manage the legal title risks.
For example, when it is time to sell the fine art or other important collectible, all buyers and related intermediaries such as auction houses, galleries and dealers require sellers to guarantee in writing (for the benefit of the next buyer) that the seller has clear legal title to the object.
The same legal title guarantee is often imposed on donors gifting art to museums and other entities because donees are aware of their legal liability for the art market title risk and the potential personal exposures of museumsí officers and trustees.
Because sellers and donors most often do not have the facts to make this contractual guarantee with objective certainty, they unnecessarily assume an open-ended legal and financial liability for themselves and their family.
The non-transparent nature of the art and larger collectibles markets creates legal title risks not only for fine art but also for other important, valued objects such as vintage automobiles, rare books and manuscripts, rare stringed instruments and estate jewelry.