Title insurance, a must for home buyers

The Indian real estate market has been grappling with lack of transparency for decades which has given rise to litigation, some for decades due to disputed ownership of the property.

Land records in India are not easily accessible due to lack of digital infrastructure. Moreover, the risk of faulty land records has grown quite high as cost of land across the country has grown exponentially in the last few decades. The more common, possible title problems with newly-built homes are related to the legal ownership of the land on which they are built.

Given the risks, there is need for Title insurance to safeguard the interests of buyers. It provides the owners protection against any property loss or damage they might experience because of instances of liens, mortgages or any such encumbrances in the title to the property.

For example, there are cases of family members claiming to have share in the land even when their names are not in the land records. They make a claim at a later date and entangle the property in litigation.

Title insurance is a form of indemnity insurance which insures against financial loss from claims in title to real property. While other form of insurance provides protection against future loss, this provides cover for an event in the past which has resulted in disputes.

Hence this policy is a retrospective one, where the insured is protected against losses arising from the events that occurred prior to the date of issuing the policy.

This is not an altogether new idea. It is very common in the US and Europe. Most developed countries follow the system of Conclusive Titles which allows for certainty of title to the land in question. Registration of title gives a definiteness and indefeasible right to the owner. Moreover, the availability of title insurance offers an additional layer of protection to the title ownership of the buyer.

The recent development of Real Estate Regulation & Development Act (RERA) is a welcome move to bring a systematic approach and enhance transparency. It safeguards buyers’ interests and ensures accountability and timely completion of projects.

Under RERA, the developer has to provide a written affidavit to the buyer stating that the legal title to the land on which the construction is planned contains legitimate documents of ownership.

This ensures that the land on which the project is proposed will not face delays in construction and delivery due to title disputes. But this alone is not enough. At present, none of the property transactions, be it large acquisitions or a simple sale of a land or a flat, is covered through an insurance policy by an Indian insurer.

The reason is that any title can be challenged as the Courts do not accept government records, Title Reports or Agreements as definitive.

Today, anyone can stall a project by raising legal objection on land titles well after the purchase of the land has been announced, advertised, peaceful possession of the land taken and project work on the buildings has reached an advanced stage.

Unscrupulous elements have made a thriving and growing business to raise frivolous issues and obtain Ex parte stay orders from the Courts so that they can extort monies. Lifting these stay orders takes months and stalls the project midway. These issues can make the project financially unviable.

One hopes that such stay orders will not be granted in future by the Courts with the implementation of RERA, thereby allowing Title Insurance to be established in India.

Having Title insurance can lead to renewed confidence among buyers and will certainly impact the real estate market favourably. Buyers will no longer have to depend solely on the developer’s assurances with regard to the title’s legal sanctity.

The availability of title insurance products will also boost private equity investment in Indian real estate. There will be increased interest in the sector which will ensure a win-win situation for all the stakeholders in the sector.

The writer is Chairman & MD, House of Hiranandani