Explained: Why you will soon get legal insurance for land title fraud

Financial costs related to legal charges in case there is some fraud on the property title will also be payable by the standard policy.

May 12, 2021 / 02:28 PM IST

Are you stuck with a property that has fraudulent credentials and spending lakhs of money in legal fees to get your money back? There is good news.

A working group constituted by Insurance Regulatory and Development Authority of India (IRDAI) has said in its report on title insurance that legal expenses related to fraudulent properties should be made a part of the insurance policy.

This means that legal defence costs against cases filed on the property title can be payable by an insurance policy. At present, only financial losses for the delay in property possession are payable.

Moneycontrol gives you a lowdown on the proposal and how insured customers will benefit:

What is title insurance?

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As per the Real Estate (Regulation and Development) Act, 2016, having a title insurance product is mandatory for all developers.

This specialty insurance product provides indemnity to property developers and the subsequent owners of the property against losses and risks related to defects in property title arising out of third-party challenges not discovered before the policy takes effect.

The policy is taken for 10-15 years on a per-flat basis for the entire project. After the project is completed, the housing society members can buy a product for the entire building.

The insurance product comes into force from the time a project is set up. If there is litigation related to a property due to financial issues or inaccuracies in the land ownership documents, the end land buyer is at a loss.

When a court case is filed and the project completion is delayed, the title insurance will provide compensation to the buyer of the property.

An inordinate delay in construction may also hamper the market value of the real estate project. The policy will provide compensation in the case of delay resulting in price erosion as well.

What does the working group report say?

The working group said that there is a need to standardise the title insurance product and also include legal defence costs as part of the policy.

It also said that premiums could be paid on installment basis so that the customer is incentivised to buy the product.

When it comes to properties with past history of legal cases or debt issues, the insurance company can also decide on a co-pay element. This means that for instance if there is a legal case, there will be a co-pay percentage fixed between the policyholder and insurer.

For instance, if there is a legal cost of Rs 2 lakh and co-pay is 20 percent, then the policyholder has to pay Rs 40,000 out of their own pocket.

The major exclusions here would be claims relating to tribal rights over the land and over environmental issues caused by the property.
M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.
first published: May 12, 2021 02:25 pm

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