By Rahul Sarkar
Housing Society Title Insurance
By Rahul Sarkar
Imagine this. You invested your money in a home that you love in a society you trust. You did your due diligence with paperwork and payments, picked out plush drapes and ordered bespoke furniture and settled in comfortably in your new digs. One fine day, you find out that the land on which your residence is built, is being claimed by another as theirs and you have to fight for it in the court of law. Wouldn’t that be a nerve-wracking and traumatic experience? Learn about Title Insurance in this article to see how it saves you from any unexpected ownership disputes.
What is Title Insurance?
A Title Insurance protects homebuyers against any losses, damage or defects in the Title (ownership) of the property. As a real estate project evolves, builds over time, the ownership changes many hands, from the landowner, builder, to the homebuyer. When you are purchasing a property, you are essentially purchasing a legal Title to the Ownership of that property. As the property (including the land it was built on) may not belong to the developer and could have been acquired from multiple successive owners, its Title may be disputed due to transfer errors or if proper and legal ownership documents have not been generated each time the property has been bought and sold. A Title Insurance indemnifies the homebuyer against any disputes, litigation and settlement expenses that are caused over the ownership of land from previous owners and also from claims of ‘ownership’ by other parties. It is an effective risk transfer mechanism.
In India, the real estate market suffers from many setbacks and misrepresentations with respect to ownership of property, such as a forgery in the previously owned deed, inadequate documentation, among others. If a Title Insurance is purchased, the homebuyer is safeguarded against any repercussions and tedious court procedures as the original property records (dating back to years ago) may not always be available for verification.
What is covered under Title Insurance?
Real Estate Regulatory Act (RERA) Registered Developers are mandated to buy Title Insurance for all their projects and pass it on to the buyer at the time of the actual sale of the property. Indeed, non-RERA developers too have started buying it for the additional credibility it brings.
This is a relatively new category of insurance that only a few financial agencies have started providing recently in India, noticeably HDFC Ergo and SBI.
It not only insures buyers against title defects that may happen in the future, but also covers losses that may have occurred in the past and not discovered before the policy commencement date.
Typically, Title Insurance coverage includes but is not limited to the following:
- Losses due to order of settlement
- Cost of demolition, alteration in existing structure if built without a permit by the previous owner
- Title defects due to forgery, fraud, misrepresentation, impersonation, incompetent/inadequate/under duress documentation
- Failure of any authority to give transfer of conveyance
- Coverage when the insured cannot obtain a permit to build over previously incorrectly subdivided land prior to sale
- Documents that may harm the title due to improper, false or expired power of attorney
- Inadequate descriptions and plans in historic title deeds
- Property encroaching adjoining owner’s property
- Coverage for insured if the title is not good and marketable
- Errors and omissions in drafting title/registration which results in provisions not being enforced duly
- Unknown burdens or variations that may have been imposed in the historic title deeds
Initially, the builder/developer is liable to buy the Title Insurance and pay the premium in one-time payment (which usually provides coverage for 7 to 12 years). Once the handover has been made, later the housing society may have to bear the remaining expenses and also when the insurance has to be renewed, the expense will be carried by the members.
How does Title Insurance benefit homebuyers?
Homebuyers who are looking to buy from builders/developers in residential spaces can definitely avail the ultimate benefits of title insurance which is bought by the builder. Ultimately it protects them from risk, enhances the market value of their property, saves them from long and arduous litigation procedure in case if a title dispute occurs from a historic deed, eliminates the threat of a project being stalled due to title disputes, and indemnifies them from all claims of ownership over their investment. Another major benefit is that the first time premium is paid by the developer and only the renewal charges and/or other premiums have to be borne by homebuyers at a later stage.
What should housing societies need to know?
Housing societies stand to gain the primary benefits of title insurance as currently, independent home buyers are not the primary beneficiaries of the title insurance. It is a practice for builders to ensure that the title deed provided to the society is clean and free from disputes. However, having title insurance is a foolproof measure for a society to ensure risk-free handover because it means that every member will be safely insured against the unforeseeable claims or losses in the future and no unexpected financial loss can occur to any member or to the society on the whole. While RERA developers are mandated to provide title insurance to the society, non-RERA developers can be urged and convinced to purchase title insurance before handover if the society has any suspicion regarding land ownership.