Real Estate: How title insurance can help home buyers

Real Estate, title insurance, home buyers, RERA, IRDA, property transaction, multiple owners of property

To protect the interest of home buyers and other parties involved in a property transaction, against issues related to the title of a property, The Real Estate (Regulation and Development) Act (RERA) has mandated developers to buy title insurance. It is a tool to mitigate the risks related to the transfer of title of a property—the instrument that provides evidence of a right in the property and its legal ownership. When purchasing a property from a developer you usually check the terms mentioned in the agreement but rarely do you get access to the original mother deed to verify the ‘chain of title transfer’, which is a crucial document.

Also, sometimes, there are multiple owners of the land and therefore, the ‘legal heirship certificate’ may also become essential to verify the authenticity of the title. Ideally, the buyer’s attorney should check the property’s title to ensure that there is no defect or forgery in it. However, very often, buyers do not have access to such documents nor have the knowledge or financial wherewithal to carry out such due diligence.

Title insurance for protection

Even if a buyer manages to conduct a detailed due diligence, there is always a chance of an error or not identifying a defect in the title of the property, which can jeopardise the interest of home buyers and lenders. Title insurance protects the buyer of the property against the risk related to a problem in the title of a property, which couldn’t be identified despite the performance of reasonable due diligence. Like any other insurance product, one has to pay a small premium at the time of purchasing the property that allows title risk to be passed on to the insurer.

Title insurance protects different parties in a property transaction, i.e., developers and then the subsequent home buyers, from the loss due to title-related issues. Title insurance covers financial losses suffered by the developer, landowners, lenders, housing society, or any other eligible policyholder due to the defect in the title of the land and legal expenses incurred to settle the title dispute. Policies available in the market, currently, offer cover for a period of 5-15 years. The premium is payable in one shot for the entire coverage period.

Title insurance and RERA

RERA mandates developers to get title insurance for their projects. Hence, all new projects as well as ongoing projects when the law came into force are required to be covered by title insurance. Developers are required to buy title insurance before handing over any project to the housing society or association. The title insurance should then be transferred to the housing society before the developer exits the project after its completion. However, until now, there is no clarity in the process of transferring such title insurance to the society, and only recently has IRDA indicated that it would soon come out with guidelines on the transfer process and ensure uniformity in the title insurance products available in the market.

Title insurance enables home buyers to protect their interest in the project’s land, which constitutes a big portion of the total cost of the property that they acquire from the developer.