Title insurance is a cover that protects a potential owner of a
property against loss from defects in title.
Title insurance protects real estate owners and lenders against any
property loss or damage they might experience because of liens, encumbrances or defects
in the title to the property.
A title insurance policy insures against events that occurred in the past and the people
who owned it, for a one-time premium paid at the closure of the escrow.
Title insurance protects against claims from defects. Defects are
things such as another person claiming an ownership interest, improperly recorded
documents, fraud, forgery, liens, encroachments, easements and other items
that are specified in the insurance policy.
- Initially insures the promoter/builder acquiring ownership of the property
- Eventually benefits the transferee at the event of a sale agreementbetween the
buyer(s) or allottee(s) of the said property.
- The Policy protects the rights of an owner, of the property, thereon against a
range of risks that may affect the ownership of the land/building
- Covers any legal or defense costs against insured risks in the event of a claim.
After the escrow officer or lender opens the title order, the title
agent or attorney begins a title search. A Preliminary Report is issued to the customer
for review and approval. All closing documents are recorded upon escrow’s
instruction. After recordings has been confirmed, demands are paid, funds are disbursed,
and the actual title insurance policy is created.
Owner policy : Escrow refers to the process in
which the funds of a transaction (such as the sale of a house) are held by a third
party, often the title company or an attorney in the case of real estate, pending
the fulfillment of the transaction.
During the purchase of a property, you receive a document most
often called a deed, which shows the seller transferred their legal ownership, or
“title” to their property, to the buyer. Title insurance provide protection against
law suits and claim against the property covered and purchased. Common claims come from
a previous owner’s failure to pay taxes or from contractors not being paid for their
services and labour on the property before you
purchased it.
Lender’s policy: Most lenders require and insist
the mortgagees to purchase a lender’s title insurance policy, which protects the amount
they lend to pay for its legal defense costs and reimburse any mortgage
payments mortgagee can’t make because he/she has lost the house to someone else’s claim
on it. Lenders might alternatively want to buy an owner’s title insurance policy, which
can help protect their financial investment
in the property covering their legal fees and other losses, as yet another step toward
protecting the lender’s collateral.
Construction Loan policy In many situations,
separate policies exist for construction loans. Title insurance for construction loans
requires a Date Down endorsement that recognizes that the insured amount for
the property has increased due to construction funds that have been vested into the
property.
- Regulatory Risks
- Revocation of clearances given by authorities like the State Revenue
Dept, Municipality, Environment Dept., etc. cleared by them as per
existing rules
- Ownership Risks
- Challenges to the Ownership of the property arising from Title dispute,
Partition dispute, Illegal Possession, Landlord-Tenant dispute,
Succession dispute, Contractual disputes, Developer-Landlord dispute,
Mortgage-Loan
dispute, etc.
- Error & Omission Risks
- Errors and Omissions committed at the time of conducting Title Search by
the Conveyance Practitioner or in conferring appropriate permits or
sanctions by the relevant authority provided by law
At the most extreme, the seller may knowingly sell you a property he
or she doesn’t own.
Typically, Title Insurance pays for the loss incurred due to title
defects up to the sum insured, which generally is the value of the property or legal
expenses to defend the case. However, additional coverage could be structured
based on client requirements.
Sum Insured will include
- The Market Value of the Land
- Completed Cost of Construction
- Can be taken on Full Value or Loss Limit basis
- Provision for Escalation
- Property Type (whether Residential or Commercial)
- Location of the risk
- Purchase Price of the Property
- Loan amount involved
- Amount of coverage Opted
- Transaction Type and Title Service Fees
- Violation of any existing Law(s) or bye-law(s), or future action by the
government concerning
- Land use
- Structures built on the Land
- Environmental protection
- Conservation
- This exclusion does not apply to violations or the enforcement of those matters
which appear in the Public Records at the Policy Date and does not limit the
coverage provided in the policy
- Risks that are created, allowed, or agreed to by Insured
- Structures which have not been built in accordance with applicable
building codes and standards, or the infestation or dilapidation of
those structures.
- Pecuniary loss from dispute / revocation of Title including Market Value of the
Lost Property
- Legal costs to defend proceedings
- Disclosure of all material facts and documentation in respect of the Title to
the property true to the best of their knowledge that would affect the
acceptance of the risk by the insurer or enhance them.
- Any failure may compel the Insurer to reduce its liability under the Policy in
respect of a claim, or may cancel the contract of insurance.