An avid follower of all insurtech startups and a critical thinker, he has also contributed several papers in organization wide technical paper contests.
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Natwarlal, the conman who is known to have fraudulently sold the Taj Mahal thrice could not have done that had specialty insurance market developed in India. You may be thinking why do I say so ? There was no damage that happened to Taj, where the administrators could have required a commercial property insurance, nor was there any slip-and-fall type incidents where the administrators could have suffered liability damage claims, thereby requiring liability insurance coverage. No, nothing like that happened but the property (Taj Mahal) got sold without a Title Insurance in place!
What is Title Insurance?
Title Insurance is required to indemnify affected party in a real estate sale contract where the title of the property might be defective owing to forgery, incompetent parties or any legal encumbrances that any government entity or another party might hold by way of liens. Having a forged title invalidates the property transfer and may result in future financial costs to the buyer. So there are benefits in having a title insurance in place when a property is being bought or sold. Generally, both parties secure their rights by buying their own title insurance.
Why is it required?
We all know the status of land records maintenance. It’s in shambles and personally carrying out the verification of the validity of ownership is a long, cumbersome and costly process. Generally, a buyer would depend on state government records or municipal authorities to determine if the property that is free of any legal issues but there are times where this information is not handy with anyone. With the investigation that can be done, an opinion is provided suggesting everything looks to be fine. This may be the only information that the buyer has the rely upon and execute the sale contract. However, because of fudged records, this may all turn out to be un-true putting the buyer under severe financial and emotional stress. That’s where Title insurance could indemnify
How does it work?
If the property is found to be having a defective title, it has to be remedied. How? There are going to be professionals in concerned departments who need to fix the defective title. If there are government departments who need to be consulted with (like Tax records, court records), there is going to be a thorough effort to get all details of the property and ensure the title is clean. Title insurance covers the costs for this. In case there are actions required to fix the title (like updating the title with correct owner details once the research is done and oversight has to fixed), the title insurance covers that too. Buying title insurance requires a one-time payment of premium and no renewal premium.
Types
There are Lender policies (protecting Mortgage Lender’s interest) or Buyer Policies (protecting the buyer’s interest in the property). The duration of these policies is different from other policies of different lines such as Auto, home, etc. This is an automatic renewal policy which remains active as long as the mortgage loan is not paid off. Also, the Buyer policy remains active as long as the buyer retains the interest in the property.
Current market
Each jurisdiction has its own nuanced version of title insurance based on local practice. In the US, title insurance is very common, usually, part of the closing costs and most states have the players offering Title insurance. In India, buyers rely on advice from brokers and their network of people. In resale of properties, some people may ask real estate lawyers to confirm the title and ownership but in relatively new construction, this is rare and real estate brokers advice is relied upon, however it remains to be discovered how well do the real estate brokers cover themselves in case of incorrect advice that their clients relied upon to buy a property!!
Viewpoint
With the benefits of title insurance and the peace of mind it provides in case of high worth property deals, I think it makes complete sense to have this insurance in place when dealing in real estate transactions.
References
- https://www.bankrate.com/finance/mortgages/6-questions-to-ask-about-title-insurance-1.aspx
- https://www.investopedia.com/terms/t/title_insurance.asp
- https://en.wikipedia.org/wiki/Title_insurance
- http://www.firstam.com/ownership/videos/what-is-title-insurance
- https://www.moneycrashers.com/title-insurance-cost-need/
