Title Verification – Key to safe investment
Dr. Ajay Pandey, Advocate Supreme Court
Real estate investments are capital intensive and require extra caution in transacting a deal. A property derives its value from the title itself, A property with a defective title holds no value. Only a clear title can set the seal on the fact that you have an explicit right to own the property and further sell it. And as for a safe investment in real estate, title verification plays a paramount role, we need to understand the entire process of such verification.
What is Title?
In simple terms, Title means ownership right to property. To ascertain the ownership, verification of title is a must, which can give a clear picture, not only about ownership but also in terms of any liability on it, viz, loans, tax, mortgage and litigation etc. In India, this task of verification of the title becomes very cumbersome and difficult due to the involvement of various regulatory authorities, state specific laws and judicial precedents.
Before entering into any transaction, it is essential to get a crystal-clear vision on title of ownerships, together with all permitted uses, encumbrances/ charges, compliance of statutory requirements, restrictions vested in the property and modus operandi to overcome obstructions, if any. Generally, a title search is conducted for a time period ranging from twelve to thirty years, which can be extended or reduced as per the objective of the party and nature of the transaction.
What needs to be checked and verified?
Ownership details
This includes every document of ownership and transfer of title such as sale deed, conveyance deed, gift deed, will documents, deed of partition etc. and if the sale is made by a person holding power of attorney, such power of attorney must be inspected carefully. It should also be checked and verified whether these documents are stamped and registered properly.
Chain of title
A chain of title means the historical record of title of the property. For that purpose, inspection of the chain starts from the present owner and ends at the original owner of the property. All the documents starting from mother deed to the latest link deed must be scrutinized. Particularly, one has to take into account the continuity of the title. At the same time, it is highly advisable to make a thorough check on your own from the concerned office rather than relying on documents provided by the seller.
Derivation of title
You also need to find out the manner in which the property has been acquired by the owner. Generally, it is acquired by one of the means like sale or purchase, gift, lease, partition. Depending upon the case, all the documents related to the property must be verified properly. The documents include registered sale deed, conveyance deed and title document of present and previous owners, gift deed, will documents, lease deed, deed of partition etc.
Nature of the right of the Owner
We have often seen that even if a property qualifies on above criteria as the clear title, worth buying but then the ownership of the property is limited and in such case the owner cannot transfer the right of property. For a valid transfer, the owner must have absolute right in the property. Record of Rights and Mutation Records can be a promising source for verification as these documents reflect the nature of the right of the transferor with respect to said property. The Owner, transferring the property must be major and in sound mind. Therefore, it must be checked that the Owner, has authority to carry out such transfer and is legally competent to enter into a contract.
Nature of property and land use
During title verification, it is necessary to ascertain the nature of the property, whether it is government-owned or privately owned. Any property which is under acquisition of government cannot be further transferred or alienated without the prior permission of competent authority otherwise such transfer will be void ab initio. Further, as per land use property can be divided into two broad categories i.e., agricultural land and non-agricultural land. While conducting title verification it is necessary to determine the land use or status of said property whether it is agricultural land or non-agricultural land. If it is non- agricultural land, then it should be further classified as residential or commercial, institutional, industrial etc. This information, particularly known as Khata Extract, can be derived from the assessment register maintained by the local municipal authorities.
Development and construction
If the property has some developments or construction, it adds up a few steps to title verification. It must be checked that the construction is in adherence to the building plan and sanction plan in the same manner as prescribed and passed by the municipal authorities. In addition to this, builders are required to seek various permissions and approvals with respect to infrastructure and utility facilities like water, sewage, electricity, environment compliance etc.
If it is ready to move-in property, you should also check occupancy and completion certificates. Further, you should also check the Khata certificate. As a matter of practice, when a new property is registered a Khata number is allocated and Khata certificate is provided which states that the property ‘xyz’ is in the name of person ‘abc’. Khata certificate is essential for getting water and electricity connection. Therefore, while conducting title verification, it is advised to determine whether all the local construction rules were followed and complied with or not.
Further, if the property is under construction stage it is important to scrutinize the following aspects–
You must ascertain if the developer is the owner of land itself or he has entered into a joint development agreement with the landowner. In case of the latter, a power of attorney must be executed between the landowner and developer, which must be scrutinized while conducting title verification. It must be ascertained that the builder is complying with all the local construction and safety rules. It is also necessary to determine if the builder had sought all the necessary permissions, authorization and approvals. You need to ascertain if the construction is in compliance with the sale agreement.
Encumbrances
Sometimes property can be used as collateral to take loans. It creates an encumbrance charge over the property which means property is subject to lien or mortgage and cannot be transacted further without the prior permission of the lender. Identification of encumbrances, charges, liens or mortgage is very important because such defects can adversely affect the title of the property. So, while conducting title verification, it is advised to get records of property examined at the office of sub-registrar in order to ensure that there are no registered encumbrances, charges and mortgage in favour of any person, bank or financial institution.
It is also important to inspect if there is any lien on the property. For example, there can be any loan and tax dues, municipal lien, mechanic’s lien, housing society claims regarding maintenance charges etc. However, presence of these liens doesn’t mean that these agencies can sell the property but they have a charge on the property which means whenever the property will be sold, they have a right to be paid with the proceeds.
After examination, a no-encumbrance certificate can also be obtained from Sub-Registrar or Tehsildar or any other relevant authority. Also, there can be some unregistered mortgage, so in order to minimize risk, original title documents must be inspected carefully.
Similarly, if the property belongs to the company, the examination of encumbrances must be done with the Registrar of Companies by inspecting CHG-1 form. Same can also be reviewed by doing a search on the website of the Ministry of Corporate Affairs.
Litigation
It is also important to ascertain that there is no pending litigation having the said property as subject matter. It can be determined by conducting a search in civil courts under whose jurisdiction the said property lies.
Seller of the property could also be asked to furnish the information regarding any pending litigation as he is bound to provide so according to Section 55 of the Transfer of Property Act, 1882 which says that the seller is bound to disclose any material defect on the property and he is also liable to answer all such questions put to him by the buyer of the property in relation with the title of the property.
In order to minimize the risk further, a representation can be made in the transaction document asserting that there are no encumbrances and pending disputes, and then imposing a liability on the seller itself in case there are any.
Restrictions and allowances
Real covenants on the property – Every housing society has some bye-laws to follow. Such bye-laws enumerate the restrictions and allowances with respect to construction on the property. For example, bye-laws of the society may not be allowing you to cover the balconies and open spaces or you may be required to follow a specific construction plan or there might be some parking restrictions which are to be considered before investing in property. So, these bye-laws must be scrutinized while conducting title verification.
Easementary rights
Easement basically means Right to Way. It is possible that owner may have provided a right to way to adjacent property or sometimes there can be easements created for utility services like a portion of property may have been reserved for installation and repair of water and sewage pipelines, electrical cables etc. which have to be looked upon while conducting title verification.
Public notice
Considering the fact that some transactions remain unregistered and remain masked even after due diligence, therefore to be discreet, it is always suggested to publish a public notice in at least two local newspapers for inviting claims and asking objections with respect to property in question. On so forth, if any dispute arises afterwards such publication will endorse genuine and legitimate title ownership of the buyer in question.
Other than the points enumerated above, it is always advised to physically survey the property in question, it will provide the ground image of survey plan and also determine the exact location, dimension and area and other particulars of the property. It will also highlight if there are any encroachments over the property. Physical survey will also help you to check if there are any easements which are not reflected in the records.
MORTGAGE UPDATE :
| Banks | Starting Interest Rate (p.a.) | Processing Fees |
| Kotak Mahindra Bank | 6.50% | 0.50% |
| Citibank | 6.75% | Rs. 10,000 |
| Union Bank of India | 6.40% | – |
| Bank of Baroda | 6.50% | Rs. 8,500 – Rs. 25,000 |
| Central Bank of India | 6.85% | Rs. 20,000 |
| Bank of India | 6.85% | Rs. 1,500 – Rs. 20,000 |
| State Bank of India | 6.75% | 0% – 0.35% |
| HDFC LTD | 6.70%* | Rs. 3,000 – Rs. 5,000(plus taxes)* |
| ICICI Bank | 6.90% | Rs. 3,000 |
| LIC Housing Finance | 6.90% | Rs. 10,000 -Rs. 15,000 |
| Axis Bank | 6.90% | Rs. 10,000 |
| Canara Bank | 6.90% | Rs. 1,500 – Rs. 10,000 |
| Punjab and Sind Bank | 6.85% | Full Waiver |
| IDFC First Bank | 6.90% | Rs. 5,000 – Rs. 5,000 |
| Bank of Maharashtra | 6.90% | Rs. 10,000 |
| Indian Overseas Bank | 7.05% | 0.50% (Max Rs. 20,000) |
| Punjab National Bank | 6.50% | 0.35% (Max Rs. 15,000) |
| United Bank of India | 8.00% | 0.59% (Rs. 1,180 – Rs. 11,800) |
| UCO Bank | 6.90% | 0.15% (Rs. 1,500 – Rs. 15,000) |
| DBS Bank | 7.30% | 0.25% (Rs. 10,000) |
| IDBI Bank | 6.75% | 0.50% (Rs. 2,500 – Rs.5,000) |
| HSBC Bank | 6.64% | 1% (Rs. 10,000) |
| Karur Vysya Bank | 7.20% | Rs. 5,000 |
| Saraswat Bank Home Loan | 6.70% | Nil |
| Jammu and Kashmir Bank | 7.20% | Rs. 500 – Rs. 10,000 |
| South Indian Bank | 7.85% | 0.50% (Rs. 5,000 – Rs. 10,000) |
| PNB Housing Finance | 7.20% | 0.25% – 0.50% (Rs. 10,000) |
| Federal Bank | 7.65% | Rs. 3,000 – Rs. 7,500 |
| Standard Chartered Bank | 7.99% | 1% |
| Aavas Financiers | 8.00% | 1.00% |
| Karnataka Bank | 7.50% | Rs. 250 |
| Sundaram Home Finance | 6.95% | Rs.3,000 (for salaried) |
| Dhanlaxmi Bank | 7.85% | Rs. 10,000 |
| Tata Capital | 6.90% | 0.50% |
| Tamilnad Mercantile Bank | 8.25% | Rs. 15,000 |
| IIFL | 10.50% | 1.25% |
| DHFL Housing Finance | 8.75% | Rs. 2500 |
| Bandhan Bank | 8.50% | 1% (Rs.5,000) |
| Yes Bank | 8.95% | 1% (Rs. 10,000) |
| Hudco Home Loan | 9.45% | NA |
| Indiabulls | 8.65% | 2% |
| Aditya Birla | 9.00% | 1% |
| GIC Housing Finance | 7.45% | Rs. 2,500 |
| Reliance Home Finance | 9.75% | Rs. 3,000 – Rs. 6,500 |
| Shriram Housing | 8.90% | NA |
| India Shelter Finance | 12.00% | 2.00% |
Source: Policy Bazar
WHAT’S HOT WHAT’S NEW
Ram Mandir- A New Buzzword in Residential Developments
The euphoria created by the upcoming Ram Mandir in Ayodhya is inspiring real estate developers to cash in on this religious fervor. NCR-based Trehan Developers is constructing a large ‘Ram Mandir’ in its fully inhabited 250-acre township- Apna Ghar Shalimar in Alwar. This township is a perfect example of inter-faith harmony with a temple, mosque and a gurdwara. This temple is coming up over 4 acres at the cost of Rs 10-15 crore.
The design of this Ram temple is inspired by the original Ram Mandir in Ayodhya. The interesting part is that the mahurat of this temple was done on 5 August ,2020 at the same time when the mahurat of Ram Mandir was done in Ayodhya. The temple complex will have big halls for the marriages besides residential units for the priests. With beautiful landscaping and well-manicured lawns/gardens, this temple will be a major tourist attraction.
The buzz around this temple has already paid rich dividends to the developer as plotting done over 30 acres of land adjacent to the temple, has already been sold out. The developer may well have further gains in terms of marketing push to its newly launched luxurious residential tower-Amrit Kalash in Apna Ghar Shalimar Township.
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