This article is written by Sonia Shrinivasan, an intern at iPleaders, RTI Cell and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders).
Property and related disputes in India account for almost one-quarter of the cases decided by the Supreme Court of India. Moving to the lower tiers of the Indian judicial systems, land and property-related disputes account for more than 65 percent of the civil cases annually. Studies show that it takes almost 20 years on average for disposing of a property dispute, and the expenses incurred during this period, right from the institution of the suit to the execution of the decree, are sky high, and more often than not, burn a heavy hole in a common man’s pockets, depriving him of his life savings.
Considering the alarming rise in property disputes and the monetary load the resolution of such disputes put on the ordinary man, the Insurance Regulatory and Development Authority introduced an insurance scheme, ‘Title Insurance,’ to protect potential buyers from any challenge to a recently acquired property.
What is title insurance
Legally speaking, a title is a legal instrument indicative of the ownership of a particular piece of property. It suggests that the one possessing the title has ownership of the property in question and all the rights and ways arising out of it. Most importantly, a title essentially determines whether or not one can transfer his property to another.
A definite title is a must for any successful transaction involving properties or real estate of any kind. As the words suggest, title insurance simply refers to the protection of buyers from any loss (usually financial/monetary) arising out of any dispute in the title of the said property. Therefore, title insurances can be understood to be an indemnity from any claims filed against a property in question- back taxes, conflicting wills, etc. and is a one-time fee, involving extensive searching into the title data to minimize the possibilities of backdated disputes. It usually insures the owner against most forms of property-related risks like false documents, incorrect records, etc.
The International Scenario
This indemnity insurance is widespread globally, especially in Canada and the United States of America. In fact, the first-ever title insurance company was constituted in Pennsylvania (USA) as early as 1853, by the name of ‘The Law Property Assurance and Trust Society.’
Historically speaking, before introducing the entire concept of title insurance, it was the buyer’s onus to ensure the correctness of the seller’s title, and if any defect surfaced subsequently, it was the buyer who was left to single-handedly bear the loss.
It was only in 1868 when the Supreme Court of Pennsylvania, in Watson v Muirhead, wherein the Plaintiff lost his entire investment due to the discovery of a prior lien on the property. The Defendant, Muirhead- the one who conveyed the property to Watson in spite of being aware of the lien on the property did not disclose the same to Watson, on wrong advice of his lawyer, according to whom the said lien was not valid. When the said dispute was brought before the lower court to decide, they ruled that the defendant could not be penalized for acting upon a piece of incorrect legal advice given by a professional.
Subsequently, in 1874, the Pennsylvanian legislature passed an Act permitting the incorporation of such companies providing title insurances.
Presently, there seem to be over 4000 title companies functioning in the USA. It can be correctly inferred that the entire concept of title insurance emerged in the US, which was subsequently adopted by the neighbouring states, viz., Mexico in the late 1970s, and Canada in 1989. Interestingly enough, 25 of the 27 top title insurers in the world are American corporations.
Title Insurance Policy in India
There have been quite a few attempts to recognize title insurance policies in India formally.
- The insurers made the first attempt in 2009 towards filing title insurance products with the IRDA; the regulatory authority constituted under the supervision of the Ministry of Finance to regulate and license the insurance industries in the country. However, these policies were labelled as too expensive by a majority of the developers in the real estate sector and, as a result, were not given recognition.
- Finally, in 2016, the Real Estate Regulatory Act (section 16) made it mandatory for the real estate promoters to purchase title insurances for all their projects spanning over 500 sq.m. or involving the construction of buildings/residential spaces of 8 flats or more.
- Later on, in 2016, the IRDA submitted a report titled ‘Title Insurance in India,’ recommending the areas of coverage and rules of the policies formulated under this head.
- In the latest development, in the latter half of 2019, the IRDA formulated clear-cut guidelines for insurance companies, outlining the factors to be kept in mind while drafting insurance policies and boosting the demand for title insurance in the market.
Presently, there are seven insurance companies offering products under title insurance registered with the IRDA. They are- Bajaj Allianz General Insurance Co. Ltd.; Liberty General Insurance Ltd.; HDFC Ergo General Insurance Co. Ltd.; The New India Assurance Company Ltd.; National Insurance Co. Ltd.; ICICI Lombard General Insurance Co. Ltd.; and Tata AIG General Co. Ltd.
Any title insurance policy, irrespective of the company providing it, basically contains provisions to indemnify the policyholder from the following risks:
- Forged documents
- Incorrect documentation
- Claims of ownership by a third party
- Restricted easement rights
- Pending lawsuits or liens against the property in question
- As discussed earlier, Section 16 of the Real Estate Regulatory Act, 2016 (RERA) makes the purchase of title insurance for a promoter for projects and residential schemes over 500 m. sq. area or consisting of more than eight flats. This title insurance transfers to the buyers (referred to as allottees) upon agreeing on sale. Non-compliance with the said provision attracts a penalty of up to 5% of the project’s estimated cost.
- RERA empowers the state governments to formulate and notify the rules regarding title insurance within their territorial boundary.
- RERA provides for a complaint redressal mechanism, for complaints put forth by the allottee, i.e., a person to whom the property in question has been transferred through sale; about any structural defect in the property or for the violation of any terms of the agreement to sale, by the developer, within 5 years from the date of possession of the property by the allottee.
Benefits of getting a title insurance
Getting title insurance in the present times is always beneficial in the long run.
- It achieves the statutory requirements enlisted under RERA, thereby protecting the real estate transactions since it enhances the credit value of one’s property as collateral, aiding in easy credit financing.
- The policy covers the exorbitant litigation expenses, thereby averting the unwarranted financial strain on the policy holders’ pockets.
- It protects the home and property owners in cases of disputed ownership, especially in countries like India, where well-kept digital records of properties and land holdings are scarcely found.
- Certain insurance companies provide extensive coverage and assistance in out-of-court settlements to prevent expensive and long judicial battles; thereby saving the time and money of the parties involved.
- For residential projects, it helps the builders until the completion of the construction processes and provides an additional sense of security to housing finance providers while giving out home loans to purchase such property.
Challenges to the framework
- In spite of the state governments being empowered to form and implement the rules in order to regulate the scheme for title insurance under RERA, no active regulations have been made by the states even after more than 4 years of implementation of the Act.
- Title insurances mainly involve extensive title searches to rule out any case of multiple and conflicting ownership. These title searches require proper maintenance of land and property records by the concerned government officials. However, considering the sorry state of affairs of the government repositories in such cases, this is a major challenge.
- The 2016 IRDA guidelines recommended forming a uniform policy nationwide, requiring the payment of the premium as a one-time payment; the cost depends on the nature of the property, i.e., residential or commercial.
Having no protection against potential title disputes is bound to expose the buyers to significant risk if the property suffers from titular defects. Come to think of it; you save extensively to finally be able to purchase your dream home, only to find that the house you bought with your hard-earned money suffers from titular defects, unpaid back taxes, and whatnot. Having title insurance, in this case, saves you from an unfortunate monetary loss and protects your interest in the said property.
However, with reference to the Indian context, exorbitant premium prices, lack of uniform guidelines for operation, and no concrete mechanism in place to make the masses aware of the benefits of getting title insurance, the demand for the same is poor. This is indicative that simply introducing statutory requisites to create a demand for a commodity, in the case of insurance policies, is not a step in the right direction. The comprehensive IRDA guidelines need to be analyzed and implemented urgently, in order to ensure that there are enough companies providing title insurance as a product, to ensure fair competition in the insurance sector, so that ultimately the best of services are made available to the common man, without burning a hole in his pocket.
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