Title insurance to come to the aid of property buyers

Irdai plans to introduce scheme to compensate for loss arising from litigation or unauthorised transfers

A typical property dispute: After buying an old bungalow or a second-hand property, the buyer ends up in court because a close relative of the seller claims to be a partial owner. Property ownership disputes, especially among Hindu Undivided Families, are common. But, it is not restricted to HUFs. Many developers in the past faced problems because they sold one flat to several individuals. To provide relief to such buyers, the Insurance Regulatory and Development Authority of India (Irdai) has set up a committee to launch title insurance.

Popular in the US and Europe, the policy protects an owner’s or lender’s financial interest in property against loss because of title defects and other matters. “It defends against a lawsuit contesting the title, or reimburses the policyholder for the monetary loss incurred, up to the amount of insurance provided by the policy,” says an official of a general insurance company. The official says this will be a product essentially for the retail individual category but will be sold to institutions such as banks and non-banking finance companies.

Real estate consultants say this is much needed. Usually, when a person buys property, either she hires lawyers for a title search or if she is taking a loan, the lender does it. They go through at least 20 years of ownership records and also check if there is any litigation on the property.

Some even go to the extent of advertising in newspapers, asking interested parties to stake a claim, if any. “As land records in India are not digitised, title search is not a fool-proof method. It only minimises the risk associated with the title of a property,” says Surabhi Arora, senior associate director, research, at Colliers International India. She says, it’s very difficult for lawyers to find out if there is any pending litigation on the property outside the city where the property is located.

 

“The current method is expensive and time consuming. Though courts do favour buyers who have done due-diligence, it can take decades to finally win the case at different courts. Title insurance can further minimise such risks,” says Ashutosh Limaye, head of research & REIS at property advisory firm JLL. He says it can be cheaper for a flat and more expensive for a piece of land. That’s because evaluating a land title is more cumbersome where a lawyer would need to go through multiple government offices and development plans over the years.

Before giving the policy, insurance companies, too, will run a title check. It will go to government offices to get records of the property, like the registrar to know how many times property has been sold, municipal corporations to know the development plan records and collector’s office for land records. They will also go through courts to check registered agreements and if there are litigations. Internationally, similar checks are done. However, it is less complicated.

Apart from protecting buyers in cases where another person stakes a claim in the property, the product would also cover buyers for any defect in title because of fraud, forgery, failure of authorised transfer; documents executed under falsified, expired or invalid power of attorney and documents not properly recorded, filed or indexed in public records. Once purchased, the buyer will be covered until she retains ownership.