Q. I am buying a parcel of land in Uttar Pradesh and have engaged a local resident to assist with the title clearance of the land. He suggested I procure a title insurance cover. Can you please explain what is title insurance and why is it important?
The suggestion by the person you’ve engaged is sensible. Title insurance is a form of indemnity insurance that protects against financial loss from defects in a property’s title. These defects can arise from various eventualities, including, but not limited to, incorrect legal descriptions, public record errors, fraud or claims from previous owners.
If you’re not a resident of the place where you’re looking to purchase land, it becomes even more advisable to take precautionary measures against possible defects in the title of the land. Title insurance is one such measure. Unlike many other insurance types, title insurance is aimed at covering past issues rather than future events. A one-time premium is paid at the time of property acquisition and remains effective for as long as the policyholder has an interest in the property. Title insurance ensures the title is clear and uncontested at purchase, providing financial protection against future title issues.
A key reason for obtaining title insurance in India is to protect against ownership disputes, which can arise from ambiguities in title records, insufficient documentation, or unresolved legal issues.
Even minor discrepancies can lead to lengthy legal battles, causing financial loss for buyers. Disputes may occur due to fraudulent sales, unclear title chains, or claims from heirs and third parties. Title insurance helps safeguard buyers from the financial impact of these disputes by covering legal costs and losses related to ownership claims that arise after purchase.
It is common for purchasers to encounter unforeseen challenges when unregistered encumbrances, including mortgages, outstanding taxes or third-party claims come to light after the transaction is completed. Title insurance functions as a protective measure against these liabilities, safeguarding buyers, to an extent, from inheriting such complexities or covering incidental costs.
Lenders, including banks and financial institutions, frequently mandate the acquisition of title insurance when extending home loans. This requirement serves as an additional layer of protection against potential title defects, disputes regarding ownership, or any legal challenges that may jeopardize the property’s marketability and, by extension, the lender’s capacity to recover the loan amount.
Aditya Chopra, managing partner and Moxy Shah, associate, The Victoriam Legalis
