Title insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is available in many countries but it is principally a product developed and sold in the United States. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the amount of insurance provided by the policy.
The Government’s move to invite global companies for title indemnity of property is a welcome move. This will make India more competitive in the real estate scenario. The Government wants to follow the method of developed countries like the United States where title insurance is mandatory for all kinds of property transactions.
This simply means that the title of the property an individual buys will be insured against any hidden liens and claims. The fast growing realty sector in India will greatly benefit from this practice. Title insurance will prevent bad transactions and safeguard the buyers in case of forged deeds or illegal property claims. This in turn will prevent unnecessary litigation and will promote transparency in the real estate business. In India, lucrative property deals lack clear property titles and often end up in disputes and litigations. One of the major benefits of title insurance would be that it will not only indemnify the property owner but also the lenders and will also encourage NRIs and large private companies to invest in real estate.
Once the title is insured, even if the documents are forged for malafide intentions, the insurance will protect the owner. Banks will also benefit from title insurance a great deal. Their collateral security will be strengthened and NPA will go down considerably. As per latest reports public sector banks have written off a whopping Rupees 8832 crores in 2005-06 and Rupees 9424 crores in 2006-07 as bad debts.
Title insurance differs in several respects from other types of insurance. Where most insurance is a contract where the insurer indemnifies or guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance generally insures against losses caused by title problems that have their source in past events. This often results in the curing of title defects or the elimination of adverse interests from the title before a transaction takes place. Title insurance companies attempt to achieve this by searching public records to develop and document the chain of title and to detect known claims against or defects in the title to the subject property. If liens or encumbrances are found, the insurer may require that steps be taken to eliminate them (for example, obtaining a release of an old mortgage or deed of trust that has been paid off, or requiring the payoff) before issuing the title policy.
Buyers can now seek an independent opinion along with the financial cover on the title and will no longer have to rely on the builder or developer’s claims. All major builders and construction companies will also take advantage of title insurance.
In all, it will be a win-win situation for the construction industry, the buyer and the banks. Today, due to delay in court proceedings, the purchaser is unable to enforce any claim against the promoter or the owner who may have given declaration or representation about his clear and marketable title. These matters will now be dealt with by the insurance companies.
Let us understand the concept better as it is new to India: -
What Is Title Insurance?
Title insurance is protection against loss arising from problems connected to the title to your property. Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
Title insurance only protects against losses arising from events that occurred prior to the date of the policy. Coverage ends on the day the policy is issued and extends backward in time for an indefinite period. This is in marked contrast to property or life insurance, which protect against losses resulting from events that occur after the policy is issued, for a specified period into the future.
The owner’s protection lasts as long as the owner or any heirs have an interest in or any obligation with regard to the property. When they sell, however, the lender will require the purchaser to obtain a new policy.
The result of this entire exercise of insuring titles will be beneficial to valuers. It will be the valuer’s job to value the property and the advocates job to conduct a thorough search for ascertaining the clear title of any property in the name of the seller and purchaser. This will create more work for valuers and advocates.
But there will be a few pitfalls in this for the consumer. As has been observed, the insurance companies have tall claims when they want to insure you, but when it comes to paying damages, there are hundred of loopholes they find to evade paying the claim. It is a fear among professionals that for title insurance also, the insurance companies will charge heavy premium, earn huge profits, get the title valued and search conducted from valuers and advocates and then take an indemnity from the valuers and advocates against any discrepancy in their reports and at the time of paying the damages, put the blame on valuers and advocates and recover the money from them.
However, to make it foolproof and effective, proper legislation and implementation will be very necessary. The title record maintenance system and Government procedures need to be simplified for effective implementation. The title insurance companies will search for public records of the property to make sure that there are no hitches in the title ownership and history of the property. This system has been adopted by a majority of developed nations to a great advantage.
