Title insurance is a form of indemnity insurance which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Title insurance will defend against a lawsuit attacking the title, or reimburse the insured for the actual monetary loss incurred up to the amount of insurance provided by the policy.
The difficulty faced by Buyers without Title Insurance
- Illegal Sale Deeds and Property Documents: The records and the chain of title might be perfectly clear but the possibility of prior deeds prepared by a person will affect the enforceability of ownership.
- Forgeries and Encumbrances: Forged documents will affect the property and home ownership rights leading to jeopardy. At the time of purchasing a property, you may not know a third party holds a claim to all or a part of a property causing financial strain to resolve them.
- Boundary disputes and Impersonation: Boundary and survey problems are common and neighbour or other parties may be able to claim ownership of a portion of the property belonging to you. Common and similar names may help falsely impersonate a property owner.
- Litigation and Delay in Construction activity: Litigation is common in the construction industry because of its adversarial nature and the tendency for disputes to arise. A combination of environmental and behavioural factors can lead to construction disputes and major delay in projects. Projects are usually long-term transactions with high uncertainty and complexity, and it is impossible to resolve every detail and foresee every contingency.
Benefits of Property Title Insurance
- Benefits to Buyer: The purchaser of real estate needs protection against serious financial loss due to a defect in the title of the property purchased. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records and non-record defects that could not be discovered in the record, even with a complete search
- The benefit of the Lender: Most of the lenders are concerned with the safety of the mortgage investments. The title insurance policy provides the mortgaged with a high degree of security against the loss of security
- The benefit of the Developer: The title insurance shall considerably assist the developers evaluating litigations. This in turn definitely helps the developer to ease out delays in construction and removing title problems
Title Insurance in the USA and Europe
Establishment: Prior to the invention of title insurance, buyers in real estate transactions held sole responsibility for ensuring the validity of the land title held by the seller and in case if the title were later deemed invalid or found to be fraudulent, the buyer eventually loses his investment. It was in the mid-1870’s Real Estate Insurance Company of Philadelphia was introduced to extirpate Title and Insurance problems
Types of Policies:
Owner Policy – An Owner’s Policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you have an interest in the property. Only an Owner’s Policy protects the buyer should a covered title problem arise
Lender Policy – The policy amount decreases as you pay down your loan and eventually disappears as the loan is paid off. An Owner’s Policy is usually issued in the amount of the real estate purchase. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer
Construction Loan Policy – Title insurance for construction loans require a Date Down endorsement that recognizes that the insured amount of the property has increased due to construction funds that have been vested in the property
Outside the US: Title insurance has mainly been sold to US investors operating in foreign and unfamiliar markets. Policies sold recently outside the US come close to its origins, as insurers do not examine the quality of individual titles and do not build title plants
RERA (Real Estate Regulatory Authority) and IRDAI (Insurance Regulatory Development Authority of India)
- The systematic Growth and Transparency will definitely bring positive developments in Title Insurance and ownership of the documents
- The RERA regulations state that the developer has to provide in writing to the buyer about the legitimacy and accountability of the legal land title and ownership of the documents
- This shall boost the confidence among buyers and the problems and litigations faced during the construction process shall be minimized
- The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous, statutory body tasked with regulating and promoting the insurance and reinsurance industries in India
- IRDAI has deputed a constitute a ‘seven-member working group’ to study the scope of Title Insurance in the Indian market like current market trends, practices in International Market, insurable risk and define the compensation structure
- IRDAI brings out optimum amount of self-regulation in day to day working of industry consistent with requirements of a prudential regulation
- Given the existing problems with land records, implementation of title insurance could still be difficult and could take up to two years for RERA to be fully implemented nationwide. In the meantime, premiums may rise as insurers take on more risk. But in the long run, RERA will reduce the costs of due diligence on the property, simplifying property sales.
- When structured this way, title insurance merely complements and enforces the professional liability of professionals involved in real estate transactions. The insurers must avoid adverse selection without the individual screening of properties and policies. The willingness of professionals to adopt strict liability standards, making casualty title insurance redundant and the capability of the current conveyance and registration systems to close the remaining gaps in security.
If you are planning to buy a property sometime soon, RealDocs has created a mobile app that aims to help you determine what documents are required for a particular property based on the type of property, and most importantly, the applicable laws of your state. Feel free to download the RealDocs app from the Google Play Store, by clicking here.