How effective is RERA mandate on Title insurance
RERA envisages that the buyers of constructed units must be protected from various contingencies and protecting them from losses arising out of defective title insurance is one of them.
HDFC ERGO, country’s third largest non-life insurance provider in the private sector recently announced the launch of its ‘Title Insurance Policy’, that will provide indemnity to property developers and the subsequent owners of the property.
The insurance will be against losses and risks related to defects in Property Title arising out of Third Party challenges not discovered prior to the commencement date of the policy due to;
• The Title of Property belonging to someone other than the Insured
• Descriptions & Plans in Historic deeds of the property being inadequate
• Historic transaction being subject to an act of fraud or forgery by a third party that adversely affects insured’s rights over the title of the property
• Title to the Property being subject to Unknown Burdens or Discharge of Burdens which may have been imposed in historic deeds executed prior to the commencement date etc.
Moreover, defense costs / Legal costs incurred are also covered under the policy. Also, certain known defects in the title, may also be covered under the policy by specific underwriting assessment for an additional premium.According to AnujTyagi, Executive Director & Chief Distribution Officer, HDFC ERGO General Insurance Company, “Title insurance will provide customers’ the peace of mind from Title risks related to the land on which the property rests. It is crucial and a must-have, for developers not only because it is mandatory but is as an effective risk transfer mechanism.”
Sandeep Shah, Partner, N. A. Shah Associates LLP is of the opinion that even though the developer with the help of experts investigating into the title of the land seller including by carrying out search in the Registrar’s office, publication of advertisement in newspaper about potential acquisition, enquiries etc., litigation surrounding marketable and clear title is still rampant in India. “The land registry records are not computerized by all the state governments/ Union territory. Many litigations are prevailing in the country due to fraudulent transfer of the ownership records, sometimes inaccurate or misplaced and decaying old records also adds to the woes. There are instances also where the ownership has been transferred under power of attorney which was not validly given by the owner or where it was used much after the owner had expired.”
Only because developers have taken title insurance does not mean that they will be reimbursed the insured amount. The policy will always be subject to terms and conditions and if the developer was aware of any defect in the title which was pointed out during the legal diligence and if the developer decided not to have them addressed suitably including rectification as required by law, the Insurance company will be well within its right to refuse to pay the insurance coverage.
On the other hand, the title insurance will increase the cost of project as the Insurance company will have to carry out due diligence and the history of litigation surrounding defective title in the country will certainly be one of the factors while calculating the premium. The reason for Insurance companies not being in a rush to provide insurance cover is the challenges over how much liability they will be saddled with compared to the premium earned by them.
Explaining the efficacy of Title Insurance for developers, HarmeshMadhyani, General Manager, Taxation, Finance & SAP – Raheja Universalstated, “Section 16 of the RERA Act entails developers to implement title insurance. Title insurance like any other insurance policies helps you from unanticipated claims. However, the significant distinction which is additionally the favorable position is that title protection on your property is a one-time premium; there is no yearly premium to keep the policy in effect. It covers your real estate property as long as you or your heirs retain an interest in the property. The title insurance policy available globally is primarily on two categories, Owner’s Policy and Lender’s Policy. In India, section 16 under RERA act only speaks about the owner’s policy. This indicates that India is in a nascent stage at developing insurance policies for the Real Estate sector. “
• Title insurance will help built confidence in Developers and Customer will have protection as they would have made huge investment in such property.
• Analysts believe that the accessibility of title protection will likewise support private value interest in Indian real estate, as worldwide financial specialists are exceptionally specific about clear titles
• Title insurance protects investment in real estate and provides coverage against financial loss arising from title defects and other irregularities relating to the property.
• It safeguards the possible disputes that may arise in respect of the title of the property. Though there are exclusions from coverage of which policyholders should be aware.
Since RERA imposes indefinite liability on the developers on account of defective title, the premium will be worth all its money as far as Developers are concerned. It is notable that as of date only one insurance company has announced the policy features relating to title insurance. Unless all the State regulators notifies the provisions relating to title insurance i.e making section 16 operative, the desired objective of safeguarding the buyers of property will not be fulfilled.