Real estate in India has a major problem over lack of clear title – the legal recognition of land ownership. Inaccurate, misplaced and decaying old records routinely spark litigation over disputed ownership of land – and title insurance could be the answer.

The risk to land buyers

Imagine you’ve bought your dream home, taken possession, and suddenly some people begin to demand that the land on which you live is actually theirs – and they could take you to court and challenge your ownership. Buyers may suffer even before buying because anyone can stall a project by raising a title objection. Indeed, a buyer could do all his due diligence and still not discover (till it was too late) that the builder didn’t have undisputed ownership of the land.

The answer: title insurance

Title insurance protects property buyers against loss (and settlement costs, litigation funds etc.) arising from problems in the land title discovered after purchase. Unusually for insurance, it covers loss arising from not future events but past events. This covers title problems caused by forgery/fraud/impersonation; failure to transfer conveyance; taxes unpaid at date of cover; and documents improperly created or executed. The loss provision also covers legal defence costs, out-of-court settlements with the competing claimant or court/tribunal verdicts. If property value appreciates, the policy is endorsed to increase the limit of indemnity.

The Benefit of Title Insurance to Consumers

Title Insurance gives the consumer legal protection to ensure the developer honours his commitments. The rising confidence in the market will also improve home financing options, while ensuring timely delivery of projects.

Where RERA comes in

Till now, insurers didn’t cover land transactions because of unreliable title and even courts didn’t trust government records as conclusive. But the new Real Estate Regulatory Act (RERA) makes it compulsory for the developer to get title insurance and construction insurance for all projects. The benefit of insurance is to be passed to the buyer at the time of sale. RERA also makes the developer liable for all structural defects in the building for a period of five years. The developer must provide written affidavit to the buyer stating that the legal title to the land contains legitimate documents of ownership.

Looking forward to the future

Given the existing problems with land records, implementation of title insurance could still be difficult and could take up to two years for RERA to be fully implemented nationwide. In the meantime, premiums may rise as insurers take on more risk. But in the long run, RERA will reduce the costs of due diligence on property, simplifying property sales.