Land is the most favoured type of property when it comes to investment in real estate. However, it is imperative to take some important factors into account when purchasing properties without which any purchase might not be as good as we would want it to be. Regardless of where the land parcel is situated, taking the variables into account would ensure that the investment turns out to be a logical income-earning decision.
Land is a subject which falls within the jurisdiction of the Governments of the State in accordance with the Constitution of India, and hence the laws on property in India may vary from State to State. In addition to local laws, the acquisition and possession of property which includes an interest in property by purchase/sale, transfer, mortgage, inheritance or gift is also regulated by several laws enacted by the Central Government.
The transfer of property other than agricultural land, registry of deeds and record are included in the Concurrent List of the seventh schedule under Article 246 of the Indian Constitution. When a person acquires or purchases immovable property, the law also grants him or her the right to use, lease, sell, rent or move the land. The owner also has the right to mortgage his immovable property as a loan guarantee.
Any undisputed legal ownership of land for sale must rely on a valid title. If it’s an agricultural property, a residential plot or a commercial investment plot, we need to make sure there’s no ambiguous details about it. Any act under which the transfer of land is uncertain must be dealt with well in advance.
A title investigation search is needed for different purposes, including sale, lease, sub-lease, and mortgage. For the purposes of brevity, the reference to sale shall also include, where applicable, leasing, subleasing, licensing and mortgage purposes.
Importance of Title Verification
Land Title Verification is an integral part of any agreement involving land. There are so many things to cross reference at this point of Property Investigation, more explanations why we need to be careful and take as much time as you want to do your verification as our hard-earned cash is at stake.
The most important part of any real estate transaction is understanding, researching and perfecting its title. In fact, without checking the validity of the documents used for the transaction, that can vary from receipts, survey plan, assignment deed, layout plan, power of attorney to occupancy certificate we cannot proceed with the buying of any property. If there is a fault in one or more of the documents listed above, the whole property transaction may be ruined.
A Title Verification is important for the below mentioned reasons:
- A title confirms ownership. A land title acts as an official record for land ownership, barring a legitimate legal dispute. Without the required title, an unfiled deed or unofficial contract would not be recognised by the legal system.
- Both owners can own their own duplicate titles: a legally legitimate copy of the title can be owned by any owner of a land title. In order to check the authenticity of each copy, the register of deeds shall make a note of each owner’s copy in the recording system. A recognised administrator may retain a copy of the title on the trust’s or business’s behalf in the case of trust and company-based ownership.
- Prospective landowners also perform title searches to uncover possible problems: during a title search, an investigator looks at years’ worth of land history to locate potential land-ownership issues. A title search could prevent unsuspected new owners from accepting responsibility for past issues.
- Title searches disclose information on land taxes, property work agreements, problems with documentation and pending ownership claims, and more. If the past owner of the property has given rights to a corporation or individual for easement or use of the property, the search may also report those entered into agreements.
- Title searches can also be used by home builders, businesses and government officials for the purposes of risk management and investment security as well.
Steps involved in conducting a Title Search
The following are the steps that must be performed to conduct a title search:
- Legal capacity of the current owner of the property whether the individual is legally entitled to enter into a contractual agreement for the sale or lease of the property.
- The essence of the existing right of the owner over the property and whether that right can be transferred.
- Source of the existing owner’s rights or title.
- Legality of the construction.
- Encumbrance Certificate- This certificate is the evidence of the fact that the property referred has a free title or ownership. While purchasing a land, it is very important to verify whether the property is free from legal or monetary liability. This certificate ensures that a person has a complete ownership of the property. It is advisable to get a certificate that reflects the 30-year history of the land.
- If the property is a part of some process of acquisition – It is also necessary to know whether the property is under any acquisition process by the government. The property ceases to belong to its original owner if the property has been confiscated by the government, and becomes the property of the acquiring authority. Thus, once the property has been released from the purchase process, the property thus purchased cannot be further sold or alienated by the original owner of the said property.
- Power of Attorney- This happens usually when an agent is selling a property/land of someone living overseas and unable to be present during the sale.
- Share Certificate- If in certain situations a plot of land is owned by several persons, then the share certificates need to be checked, these share certificates are issued by the registrar or sub registrar. If the entire land is being transferred as in this case then we need to check if the land is owned by several persons, then every shareholder needs to consent to it.
- Possession-It is important to check if the land is under the possession of the person claiming it to be, this can be done by visiting the place in person to check for adverse possession before purchasing the land.
Drafting the report
After gathering all the relevant information, as above a search report or title report will have to be drafted which will contain all the relevant points of investigation done. A search report should contain the following information:
- A full description of the property.
- A chronological list of documents/deeds perused (in original or photocopy) and
- which amongst them actually verified from the government offices.
- The finding on the nature of title of the owner.
- Whether any dues recoverable as arrears of land revenue are outstanding.
- The result of the perusal of encumbrance certificates on the title to the property.
- The possibility of any subsisting equitable mortgage.
- Who has the actual possession of the property? Basis of such a finding.
- Any adverse interests exist on the property.
- Is the title clear and marketable, free from all encumbrances?
- In case the owner is a Company, Partnership, Trust, or other legal person –
- assessment on the impact on title.
- List of documents that should be kept with the bank in original in case a bank loan will be taken for the property.
- Any special or specific advice that the advocate may want to tender.
- The report should also recommend public notice to be published in local newspaper with the names of buyer and seller and the details of the property before the acquisition, it is not mandatory but can act as an additional measure against third party claims.
The title report should also contain appropriate disclaimers, which will include:
- You have not done any site/physical inspection;
- Search is limited – as there is no single window mechanism to conduct the search;
- The report is based on the photocopies of documents provided and not actual documents (if applicable);
- Client has refused to issue a public notice (only if client refuses).
From the above we can see that in any transaction related to real estate property for its sale, purchase, lease or mortgage, Title Search and Due Diligence plays an important role for an individual as well as the Financial Institution that funds such a transaction. Any other record or information concerning real estate property that affects the nature and transactions of such property is needed to be reviewed and evaluated. In addition, it is advisable to establish and ensure that all common documents, title papers, encumbrance certificates, insurance plans and government authorisations comply with the legislative specifications before entering into any other asset transaction. Time-consuming, boring and costly due diligence, although this has been said it is highly advised that due diligence or a title search be carried out before any big transaction, as it goes beyond the simple checks and exposes the most minute information which affects the transaction. Having gone through the complex and tiresome due diligence process, a person or a business may be sure of their decision to proceed with the transaction or not to proceed with it.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: