Although title insurance came to be spoken of in the Indian real-estate sector on account of the compulsory provisions of the Real Estate Regulation & Development Act 2016 (RERA)
, developers and project proponents stand to benefit more. Even concession contracts entered into with the government often get stalled on account of title issues. Yet, paradoxically, there are no takers for title insurance. The ensuing paragraphs attempt to construct the title paradigm: what is meant by good and marketable title; why title insurance has not picked up; title issues in India; and SOS measures that must be implemented.
When RERA was notified, title insurance in India was unheard of, even though it is a widely prevalent product in many other countries. Today, many general insurance companies, such as New India Assurance, HDFC Ergo, Tata AIG General Insurance and National Insurance Company, have launched this product. However, very few developers have obtained title insurance cover.
Why has title insurance not picked up?
It is an expensive product. The premium is based on the gross developed value (which includes value of land, cost of construction and profit margin of the developer). It ranges from 0.5 per cent to 3 per cent, covering a period of the sum insured for a seven-year policy. At present, there is not much scope for reduction in premiums. Given the issues highlighted above, the re-insurers are not very confident, particularly as they operate in jurisdictions where government records are conclusive and can be produced as evidence of ownership in a court of law.
It is myopic to limit the market for title insurance to developers under RERA. In the US, banks and financial institutions are furnished with title insurance by borrowers. Many buyers request sellers to provide them with title insurance. In this respect, the following exclusions have made title insurance an unattractive proposition for Indian lenders and buyers:
- Title insurance covers only past defects. One of the biggest fears of those who deal in land comes from possible encroachment in future, which, under the extant policies, is not covered.
- Stoppage of work on account of government approvals is excluded. For example, some years ago, non-availability of environmental clearances was a major stumbling block in timely completion of projects.
It may be noted that even though litigation costs (including out-of-court settlement) are covered, there is no clarity regarding the stage of reimbursement. Should the amounts be reimbursed when the matter has reached finality, it shall be meaningless given the time it takes to have our disputes resolved.
Title issues in India
Very few property owners in India can confidently say that there are no issues so far as their ownership rights are concerned. To own a property is equivalent to being its lord and master. An owner is, at the very least, entitled to five basic rights, set out below, in Latin legalese:
- Jus utendi: the right to the use of a thing
- Jus possidendi: the right to the possess a thing
- Jus abutendi: the right to consume or destroy a thing
- Jus disponendive/transferendi: the right to dispose of a thing or to transfer it as by way of sale, gift, exchange, etc
- Jus sibihabendior jus prohibendi: the right to exclude others from its use.
If an owner enjoys all the above,s/he is considered to have a good and marketable title to the property. Interference in any one of these rights, casts a shadow over the title of the owner. Such defects are not far and few between. In spite of the exorbitant prices of real estate, identifying the true owner of a property, verifying the title thereto and ascertaining defects are a challenge. Some factors that contribute to the hardship are discussed below.
- Poor state of records: Records of Rights, such as Property Register Card, 7/12 Extracts and Mutation Entries, are maintained by various government agencies. A simple Property Register Card or 7/12 Extract not only discloses revenue-related information regarding the land, but other vital matters, such as (i) the tenure of the land – whether it is freehold or restrictive in nature, (ii) its area and survey number, (iii) name of the owner, (iv) mortgages, (v) third-party rights created by the owners under various agreements/memoranda of understanding, (vi) easements, and (vii) other encumbrances. These records are easily accessible to the public. However, inspite of their importance, they are poorly maintained and in tattered condition. The process of digitalisation of land records in India is far from complete. In this context, it is natural for the Courts to hold that these records merely have a presumptive value. It may be noted that in many other countries, such government records are conclusive in nature and regarded as documents of title. Thus, in our country, the entire process of title verification hinges on the cooperation extended by the owner. Unfortunately, an owner may have a vested interest in not making a clean breast of things. The Land Bill seeks to address this situation by calling for creation and maintenance of fool-proof land records/registers that will be the ultimate proof of ownership. Under the Bill, the state guarantees the title of an owner whose name appears in the land records/register. Sadly, as of now the Bill is simply languishing.
- Litigation: Records maintained by various courts are not indexed as per the property under litigation. Searches on the websites of various courts give extremely tentative results. Litigants usually do not get a notation of lispendis filed with the Sub-Registrar of Assurances. In other words, there is no fool-proof way of determining whether a property is under dispute.
- Non-linkages of government departments: Different departments of government are not automatically linked. So far, it is not the case that as soon as a Sale Deed is registered, the Revenue Records/Records of Rights/Land Survey get automatically updated.
- In this background, a defective title is the norm, not exception.
Title insurance is desirable for many reasons, including development of a databank of proper property valuations and attracting foreign equity investors. In order to give it a shot in the arm, the Government may consider completing the process of digitalisation of land records and link various departments, and the state assemblies may consider giving the Land Bill a push. It has come to such a pass that these are SOS measures, not just for title insurance but for the real-estate sector.
About the author:
Divya Malcolm is a Partner at Kochhar & Co, Advocates and Legal Consultants. The views expressed in this article are her own and not that of the firm.