Delhi, Haryana, West Bengal, AP and Orissa are planning to insure land titles in their respective states. Land title insurance is an indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is meant to protect an owner's or lenders financial interest in real property against loss due to title defects, liens or other matters.
A one-time premium in this regard will be shared by the state governments and the primary lending institutions to provide land title insurance. According to industry analysts, many land deals fall through and many result in disputes due to unclear and defected land titles. Apart from companies, foreign investors are also wary of investing in Indian real estate due to the same reason. Insurance of the land titles will remove one of the major hurdles faced by investors in this sector. The move is expected to give a boost to FDI flow into the sector.
The product will act as a defence if there is a lawsuit attacking the title by providing reimbursement of the insured for the actual monetary loss incurred. It is available in many countries but it is principally a product developed and sold in the United States.
"At present, we do not have title insurance companies in India, but the same technique can be employed by banks and financial institutions and housing finance companies in association with the state governments," an official in the urban development ministry said. According to government officials, the move is set to boost confidence among the realty players and property buyers as the government itself will guarantee the validity of land titles.
According to experts, the land title insurance would only succeed if states take an active initiative in computerization of land records. Many states have started computerizing land titles and also get them audited to avert property disputes and to make property transactions transparent. In fact, there is a provision under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for the states to computerize land records and titles for availing funds under the scheme for infrastructure development. Nonconformity would mean the deferment of central funding to the state. "Many states have started maintaining databases of land records and updating it from time to time," the official said. Land title certification begins at the village level itself.