Title insurance a win-win for all in realty deals

Registration and Stamps is one of age-old departments rendering untiring service in registering ever increasing documents. Its role as a royal record keeper preserving more than five score years-old documents is well-acclaimed.

The very objective of the Registration Department is to maintain record of real property transactions and to provide this information to the interested parties in the form of Encumbrance Certificates and Certified Copies.

This helps prospective purchasers, lending agencies etc., trace out ownership links of the property. Besides, the department also maintains lists of government lands, assigned lands, endowment , Wakf, Bhoodhan and ceiling surpuls lands which are generally prohibited from registration, and thereby prevents unlawful alienation of such lands.

On the other hand, the Stamp Act is a fiscal Act designed to strengthen the State Exchequer. In the inception, emphasis was more on meticulous procedural aspects of registration than the incidental accrual of coffers in the form of stamp duty. Of late, tilt is towards stamp duty understandably to bridge the ever widening revenue gap.

In the good olden days, the registration wing was aptly called as the assurance department. The buyer had confidence that registration of a document by the department confers a valid title of property in his favour. Such confidence stood the test of time as long as land was not a commercial commodity.

However, with ever increasing demand for land, fast escalating prices, mobility and heterogeneity of society, entry of land mafia etc., litigations are increasing year by year. Registration of a piece of property as understood by a common man is an authentic and valid confirmation of title in favour of buyer. He is unaware of the intricacies of the Registration Act in vogue.

Registration cannot be equated with transfer of title of property. The maxim of law is “no one can give better title than what he has” (nemo dat quod non habet). In other words, a defective title holder cannot pass on a valid title to his buyer. Supposing in a chain one link is weak, though the remaining links are strong enough, it suffers infirmity.

Similarly, in transfer of title of property through a series of transactions, even if one transaction is defective, all the subsequent transactions will become legally vulnerable, though purchasers and transactions are genuine and bona fide. This causes immense problems to innocent purchasers or money lending agencies. They are unaware how to trace the ownership of property.

Panacea for realty scams

• Increasing fraudulent practices a cause of worry for asset owners and buyers alike
• In title insurance system, insurance companies indemnify financial loss from defects in title and thereby interests of the parties to the property are protected.
• Insurers can collect a nominal premium, say 0.05% of property value
• For an individual, it is very difficult and time consuming to undertake title search, fight legal battles, confront the ruthless land grabbers etc., but an insurance company with its institutional strength and legal ingenuity can do so.
• As parties to the document tend to show the true value to the extent possible to face the eventual risks. Thereby, the State gets more revenue in the form of duties

Title verification is very cumbersome and no one is informed what procedure is to be followed. It requires understanding of complicated, ever changing revenue, municipal and civil laws. ‘Caveat emptor’ or buyer beware is the thumb rule followed in real property transactions. No one comes to the rescue of innocent purchaser or lender in case of eventual financial loss due to defects in title of property.

General problems
The general problems faced by the real property purchasers and lenders are as follows:
i) Tracing out the ownership of property through a series of links and identifying weak links of chain;
ii) Double registration of a property by dubious means such as change in boundaries, extent of land and adding special characters to the survey numbers of previously registered property;
iii) Impersonation i.e., registration by a false person in the guise of original owner; and
iv) Entry of land mafia/grabbers creating false and fake documents and threatening the real owner and initiating unnecessary litigation by foul means so that the owner of property lacks peace of mind and is often forced to sell away at a lesser price.

Reality vs gravity of the problem
The government has taken several preventive measures to arrest frauds and to curtail legal disputes such as introduction of Rule 26k of Registration Rules to stop unilateral cancellation of sale and certain other deeds, integration with web-land data of Revenue Department and compulsory production of pattadar pass books, title deeds, capturing of photos of parties to the document and witnesses in the Sub-Registrar Office etc.

In the combined Andhra Pradesh State, for the year 2012-13, 24,59,731 documents were registered and achieved revenue of Rs 6,588 crore. The asset value of the sale and mortgage transactions would be more than one lakh crore rupees.

The number of litigations may not exceed a thousand out of these, the more than 20 lakh sale and mortgage transactions and may involve asset value of a few crores.Though, the number of litigations is very meagre compared to the volume of registrations, its impact is very grave, severe and cannot be ignored.

Whenever property
owners come across news regarding real frauds, they get panicky with the painful thought of meeting the similar fate. Everybody is worried because they are not sure whether they are out of the ambit of unfortunate few or not.

Thus, purchasing property is often felt as a nightmare instead of a happy event. Though, the incidence of such fraudulent incidents is negligible compared to the overall quantum of registrations, the impact on general psyche is profound.

Possible solutions
i) Empowering the department for title verification and to strengthen the registration procedure: This complicates registration process and causes inconvenience to the registering public. More rules lead to more corruption and go against the current trend of ease of doing business. Courts also do not approve such interference.
ii) Setting up fast-track courts for speedy disposal of land disputes and punishment to culprits: The practicability of this solution is self-evident from the plethora of cases pending before various levels of Courts of Law.
iii) Title by registrations (Torrens title system): Perhaps, this is the best solution for the property owners and lenders. It requires integration among revenue, registration, municipal, survey etc departments. Preparation of perfect data on ownership of property and mapping the same physically on the land by extensive survey and maintaining electronic records of such ownership data is sine qua non for success of Torrens title systems. Bhu Bharati, an Integrated Land Information System, is one such project contemplated in this direction. Its completion in the near future is undoubtedly doubtful.
iv) Title Insurance: Having discussed with the possible solutions which appear to be inadequate, let us explore one more solution viz., title insurance for real property transasctions.

Title insurance is not an altogether new idea. It exists in many States of USA and European Countries. In this system, the insurance company indemnifies the financial loss from defects in title and thereby the interests of parties to the property are protected.

The insurance agency undertakes the burden of title search which includes deeds, mortgages, court orders, encumbrance, title deeds, pattadar pass books, taxes, municipal records and many such other documents on behalf of prospective purchaser/lending agency and after satisfaction indemnifies the title by registration from subsequent possible risks.

This ensures greater security and protection to owners or lenders financial interest in property against possible risk and they need not worry, once insured. As far as financial viability of the the Title Insurance Scheme is concerned, a mere collection of 0.05% towards insurance premium is sufficient to make it a profitable venture even if it is implemented on optional basis.

As already mentioned, in the combined State of Andhra Pradesh, the asset value of registered sale and mortgage deeds in the year 2012-13 was more than one lakh crores. In rural areas, people may not show much interest in insuring the title as the parties to the document personally know and have confidence in each other.

In urban areas, the scenario is different. Registering public, invariably go along with title insurance. The volume of asset value in urban areas is predominant compared to rural areas. Even by moderate estimation, about Rs 80,000 crore asset value will certainly be covered under title insurance and the premium at the rate of 0.05% would be around Rs 400 crore, which is obviously sufficient to sustain insurance agency. In fact, the asset value is ever increasing and so also is the insurance premium.

On the other hand, even today the number of litigations is very nominal compared to the total number of registrations. With the acumenship and professionalisation, the insurance companies can further reduce the number of litigations and to that extent earn more profits.

Advantages to the buyer, lending agency
Purchasing peace for peppercorn @ 0.05% of the property price is certainly a promising. When a person buys property or lends money worth Rs 10 lakh, an additional payment of Rs 5000 is definitely not a burden keeping in view the indemnity he gets against possible risks.

Moreover, for an individual, it is very difficult and time consuming to undertake title search, fight legal battles, confront the ruthless land grabbers etc., but an insurance company with its institutional strength and legal ingenuity can do so.

Advantages to the State
Title insurance is a step forward in transforming the present deed registration department into the title assurance department in letter and spirit with minimal efforts. At present, keeping in view the fluctuating real estate transactions, the department usually fixes the guideline market values for most of the properties far below than the prevailing market values as a matter of cushion.

As of now, there is no incentive for the parties to show the true value in the document. Conversely, they have to pay more Stamp Duty, Registration Fee, Transfer duty and Capital gains taxes etc., if they reflect the real consideration in the document, which is often more than the department’s guideline value. The State neither assures the title nor protects the interests of the parties in case of eventual risks in the transaction, if any.

But, in the Title Insurance Scheme, the property is insured ad valorem. The indemnity and compensation is commensurate with the consideration of the property mentioned in the document. Thus, the parties to the document tend to show the true value to the extent possible to face the eventual risks. Thereby, the State gets more revenue in the form of duties, fee and taxes and to that extent menace of black money can be curtailed.

The Insurance Company with its legal expertise, professional approach and institutional strength can effectively tackle and control the unscrupulous land grabbers, real mafiaand habitual litigants. The real crimes will come down and the State image goes up and a conducive atmosphere for realty will be created. More importantly, the credit worthiness of irregular real properties substantially get increased by correcting the defects.

The possible risk in the entire scheme is huge claims of compensation on fake transactions of mala fide parties with the connivance of dishonest staff of the insurance companies. Such scams can be avoided by the inherent checks and balances and self-policing mechanism of insurance agencies.

The modalities of insurance companies such as purely private, State-owned or PPP model can be worked out, once the concept of insurance of title, in principle, is accepted. Overall, title insurance is pragmatic approach to curtail many maladies prevailing in present deed registration mode.

It is a win-win situation for all the stake holders of real property transactions viz., sellers, buyers, lending agencies, insurance companies and the State. (The writer is Deputy Inspector General-Registration and Stamps, Telangana)

By Ginjala Madhusudhan Reddy