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Assessing and responding to risks is one of the vital functions of the human brain. All human actions are subject to the results of such assessments. However in certain circumstances even the human brain is unable to assess and map the degree of risks, its actions are going to be exposed to. It is under these circumstances that insurance policies are preferred as it guards one against unforeseen risks that may have a serious impact on one’s property, life and health among other factors.
India is the seventh largest country in the world with its total geographic area being 3,287,240 sq.km, wherein 91% of the area is covered by land and remaining by water.
As far as India is concerned, land is an impetus as well as an impediment to its development. All the courts in India are clogged and choked with never ending land disputes, thwarting our nation’s progress. In the last decade various efforts have been made to transform this impediment into impetus. The considerable growth in the real estate transactions coupled with the escalation of disputes involving real estate has resulted in increase in awareness of the risks involved and the consequent need of ensuring that these unforeseen risks are minimized and indemnified through title insurance. Before entering into any real estate transaction the buyer insists on the seller making out a clear and marketable title for the property. Cambridge Dictionary defines marketable title as “the legal right of the owner of property to sell it, as there is no other legal owner”. In countries like India where there is an absence of a single window title verification system, title verification reports for a particular property often come with a lot of qualifications and are generally never unassailable. To acknowledge the importance and impact of title insurance on the Indian real estate market it is first pertinent to understand the meaning of title insurance.
Title insurance: meaning
Title insurance is a form of indemnity insurance which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Title Insurance safeguards an individual from the inherent risks involved in the uncertainty of the title of the land by identifying the already existing or known defects in the title of the land and providing a comprehensive coverage for losses, claims or defects arising out of the past unknown defects in the title. Title insurance provides indemnification from all unknown defects or lien on the Title as on the date of the insurance cover, including but not limited to defects caused by fraud, forgery, undue influence, incapacity, incompetency, failure of any person or entity to authorize a transfer. Title Insurance is the finished product offered to a potential customer, however all title insurances are put through the stringent test of an intricate due diligence process.
Due diligence and documents required for title insurance policy
When any person approaches an insurance company to obtain a title insurance for a property, the insurance company conducts a thorough due diligence and title investigation of the property to assess the possible risk involved and to work out a suitable insurance cover. Having said that, due diligence is not a process that gets completed within a day or two, it is a tedious process with multiple people working continuously behind the scenes to make sure that there are no encumbrances, liabilities, lien, debt including government debt, mortgages, lis pendens, court orders, attachment, acquisition existing in respect of the property proposed to be insured that may be passed on to the new owner who is buying the property in good faith believing it to be clear, marketable and free from all encumbrances. The title investigation agent will undertake a full search of the property by perusing various public records, to ensure there is no flaw in the transfer of the title. The documents required for conducting such due diligence would include the following:
- All original chain of title documents pertaining to the property right from its inception and ascertain if the same have been duly registered and adequately stamped.
- If the land proposed to be acquired is an agricultural land converted to a non-agricultural land, obtain the order allowing such conversion of land.
- 7/12 extract of the land.
- Property card of the land if the land is within the municipal limits.
- The mutation records, Village Form VI D, Village Form VI C Certificate, Form VIII A, Encumbrance Certificate (Form XVI), Book No. 1, Index I and Index II pertaining to the land proposed to be insured.
- If 7/12 extract document reflects liability towards a bank in a traceable past, ask the seller to obtain a release certificate from the respective bank clarifying that the land has been cleared of all the charges.
- Tax Receipts pertaining to the property to ascertain if there are any pending dues.
- Details on existence of any easement rights on the land and a copy of any agreement or written document, if existing evidencing such rights.
- Details of any litigation that may be pending or decided in relation to the property proposed to be insured and certified copies of any court orders, decrees, probate, letters of administration pertaining to the said property.
- Check if any charge is registered with CERSAI.
- Check if Memorandum of Deposit of Title Deeds is entered into or a Notice of Intimation is filed with the concerned sub-registrar in whose jurisdiction the property is situated.
- Check if any unrecorded municipal lien exists in respect of the property due to expired permits, unpaid utility bills, unpaid property taxes or dues etc.
- Land survey report to ensure there are no boundary issues.
- Zoning letter to ascertain if the land use is consistent with the extant zoning rules and regulations.
- Ascertain the nature of the current owner’s right over a property and his capacity to transfer such interest.
- If the property is sought for construction on that land, it is pertinent to examine the legality of such construction given the variance in various state and central laws.
Having examined the intricacies of the due diligence process, it is now important to understand whether obtaining title insurance by going through the cumbersome process of due diligence is a voluntary affair or a mandatory requirement in India.
Title insurance under RERA
The first bare reading of Section 16 of Real Estate (Regulation and Development Act), 2016 would give an impression that obtaining a title insurance by a promoter is mandatory under RERA, but it is to be noted that the words used in that section are “as may be notified”. No doubt this provision provides a cushioning safety to the allottees as the benefits of the insurance once bought and premium once paid by the promoters will eventually get transferred to the association of allottees, obtaining a title insurance continues to remain a non-mandatory provision till a notification in this regard is published in the official gazette.
Even though obtaining title insurance has not been notified as a mandatory requirement, the benefits of title insurance can seldom be denied.
Benefits of title insurance
- Expanding the horizons of investments
Unlike the general trend, real estate projects having a title insurance in place would attract investments both from the individual as well as institutional players, as title insurance has an inherent tendency to mitigate the inbuilt risks involved in the acquisition of such projects.
- Eases the process of real estate finance and credit availability
Projects having title insurance, increase the value of the property in terms of the quality of collateral and thus is in a better position to obtain finance from banks and other institutions at much subsidized rates.
- Security for the allottees and association of allottees
As per the RERA mandate once title insurance has been obtained by the Promoters and a premium towards the same has been paid by them, the insurance shall stand transferred to the association of the allottees, this acts as a safety shield for the innocent buyers purchasing in good faith.
- Coverage of insurance
The insurer in addition to offering an indemnification to the insured, against any unknown defects in the title, also undertakes to bear all the litigation costs, out of court settlement expenses, if incurred by the insured on account of any past unknown defect in the title of the property.
Given the above benefits and following the RERA mandate, many insurance companies in India have come up with title insurance policies, however there have been very few takers. The high cost of premium associated with obtaining such insurance cover is one of the prime reasons for such a response from the real estate industry. Even if the State by an official notification mandates obtaining of title insurance, the ultimate burden of the high premium would be passed on to the weak shoulders of home buyers by way of increased sale price. Title Insurance is no doubt the future of the real estate industry of India, but given the excessive lobbying and resentment amongst the developers for this mandate, this policy must first be popularized in the country and a definitive framework for the same must be set out by the IRDAI.
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