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Title insurance can solve a lot more too

Sameer Dhanrajani
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It can provide coverage for loss if there is no right of access to the land acquired. A look at the advantages bySameer Dhanrajani

handling a crisis:When your site is cordoned off
handling a crisis:When your site is cordoned off

A timber merchant in Bangalore purchased a plot 92 years ago, but his family remained unaware of it. By the time they got to know of it in 2008 through some relatives, the situation was far beyond their grasp. The land today commands a huge commercial value. The tragedy, however, is that despite having the documents of the property, the successors could hardly claim the property because they could not locate it in the first place. On conducting surveys through personal and professional sources, the actual whereabouts of the place could be traced, but the territory had been encroached partially or completely, depending on the sources that traced out the plot. Worse still, the sources that claim to have located the plot demanded a big moolah from the heirs to show them the property. This is a staggering commentary of the disaster called real estate transactions in India.

Historically, real estate transactions have been clumsy in India. The lack of a well-organised approach to the maintenance of land records has been a breeding ground for encroachments, property losses and unauthorised constructions in residential and commercial sectors.

The concept of centralised information on ownership and usage of land is still rather alien to the Indian masses. Land locked in litigation and the opaque manual system of record-keeping enable extensive manipulation and fraud. Property maps have been traditionally stored in paper rolls in haphazard fashion. Retrieval and sale of maps on demand takes several days and leads to substantial inconvenience.

There are a few professional firms which specialise in tracing lost property. These firms coordinate with the local land registrar offices with obsolete maps or documents and emerge with significantly better details that can be of fair correlation to the present. Needless to say, there is a decent fee claimed for the effort. In a very subtle way though, this actually puts into perspective the depth of ambiguity and murkiness that exists in the real estate record maintenance in our part of the world.

Obsolete

Referring to the case mentioned at the beginning, the territory where the piece of land was bought was once a village and has now got merged into the city of Bangalore. The property map that was created at the time of purchase almost a century ago is too obsolete to make a substantial interpretation of the property and its value in today's context. The current claimants to the property in such scenario would, more often than not, be wronged legally or illegally by a host of rivals. But then, this is just one of the instances that came to the fore. Numerous others, particularly in the rural areas, are not fortunate enough to see the daylight.

A unique irony in developing countries such as India is that whilst the corporate and commercial sectors boast of rapid development and state- of-the-art technologies, the administrative system is still stuck with antiquated mechanisms. This disparity is highlighted in the way real estate transactions are executed.

For effective administration, planning and empowering the people with the right to information about their land details, a computerised system of land records is highly essential. Detailed and updated information in an efficient retrieval mode is necessary for this purpose. The database thus created will help in activities such as land tenancy, land ceiling and consolidation of land holdings and to provide horizontal and vertical linkages with other departments and financial institutions.

The absence of transparency in land record maintenance and insurance to authentic ownership of property in the Indian real estate market is preventing many NRIs and sponsors from investing in this market. Investors consider land acquisition in India as a high-risk transaction because of the vulnerability to their financial interest in immovable property against loss due to title defects, liens or other matters.

The Union Urban Development Ministry has suggested a title insurance proposal to State Governments and has invited global majors in the insurance sector to cover insurance on property title in the State. Once such a system is in place, it will not only make ownership of property more credible and secure, but will also lead to renewed confidence among buyers.

Win-win situation

Title insurance can cover losses and damages suffered if the title is unmarketable, and provide coverage for loss if there is no right of access to the land. If such a cushion is not available, investors or otherwise owners have to suffer considerable financial losses. With the title insurance in place, developers will be in a win-win situation, as there will be greater comfort levels in buying land and built-up projects. They may also recognise the marketing aspects of telling potential buyers that the property has title insurance coverage. Property transactions will be speedy as banks would feel more secured to grant loans against insured property.

One of the key components of title insurance is to establish the historic sequence of ownership of a certain property. A detailed and precise mapping of the land and infrastructure needs to be done. Clearly documented database of the property and its owners (existing and prior), the mode of payment, obligations and litigations of the property are mandatory steps in the investigation. After such a comprehensive scrutiny, when a title insurance company provides an insurance policy, it leaves little scope for malpractice. Thus, title insurance goes a long way in protecting the interests of consumers.

India, with its geographic vastness and diversity, provides vast opportunities for title insurance firms. The land record data needs to be structured, digitised and centralised in order to enable data accuracy, transparency and quick retrieval. The combination of electronic data maintenance and title insurance will be the best antidote in India for the present and potential owners of property against the bane of ambiguous transactions.

(The author is Country Head, Fidelity National Financial India)

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