What You Need To Know About Title Verification And Search Reports
Purchasing and owning a home should be at the top of everyone's dream list. The elderly couple who lived in our neighborhood were in the same boat. They used their life resources to buy a property next to ours in 2010. They quickly moved into the house and have been living happily ever since. Everything was OK until they received a warning from the bank in June 2018 to evacuate their home for not repaying a loan of Rs. 65 lacs that they had never accepted. It was obvious that the merchant had duped them.
They never imagined that their beautiful home would one day turn into their worst nightmare, since they were suddenly homeless and impoverished. You can imagine the anguish they've gone through.
What happened to the elderly couple might possibly happen to you. Furthermore, these types of scams are popular in the real estate industry. However, performing a Title Verification before to investing in real estate will protect you from these types of scams and save you millions of dollars.
By performing a Title Verification, you may ensure that the transferor is the true owner of the property and that he or she has the authority to transfer the property's legitimate ownership or title, which is free of encumbrances and defects. Furthermore, such verification will assist you in reducing the risk associated with the transaction.
You can hire a real estate attorney or a professional title search company to do title verification services, or you can do it yourself using the instructions in this article. So let's get down to business with title verification.
What does title verification entail?
The term "title" in the context of real estate refers to the rights that arise from legitimate property ownership. A clear title serves as irrefutable proof of ownership. So, whenever a real estate transaction occurs, a complete title search is performed to guarantee that the title is clear and marketable, as a defective title can put you in legal and financial trouble.
The process of checking and confirming property documents in order to determine the legal ownership of the property and any faults in the title is known as title verification. Typically, a real estate attorney or a professional title search company conducts title verification, after which a report titled "Abstract of Title" or "Title Search Report" is generated based on the verification.
A title search is typically undertaken for a period of twelve to thirty years, however this might be extended or lowered depending on the party's goal and the nature of the transaction.
Verification of title in its entirety
The nature of the transaction must be understood in order to define the scope of the investigation. It can be broken down into –
- A complete search
- A search that is restricted
A complete search is undertaken for transactions such as sales and long-term leases for a period of at least thirty years. Every facet of the history of the property in question is searched and scrutinized in detail for a complete search, including the flow of ownership rights, encumbrances, and litigation status.
A limited search limited to fifteen years is sufficient in the case of transactions such as short-term leave and licensing. Only current transactional history, encumbrances, and conflicts are included in its scope. Because title ownership is unimportant in these deals, if a dispute occurs later, the licensee can simply quit the property.
What needs to be double-checked and confirmed?
Details on who owns what
It is critical to confirm that the transferor is the true owner of the property and that he or she has a clear and marketable right to the property. This can be verified by looking at the original property-related documents and seeing if they match up with public records held by the local government.
Every document proving ownership and transfer of title, such as a sale deed, conveyance deed, gift deed, will paperwork, deed of partition, and so on, must be thoroughly examined. If the sale is conducted by someone with power of attorney, the power of attorney must also be thoroughly examined.
It's also a good idea to double-check and double-verify that these documents are correctly stamped and registered.
Titles in order
It is fairly common for a property to have been sold and transferred several times. As a result, title verification entails not only checking and validating the title of the current owner, but also that of previous owners. The historical record of the property's title is referred to as a chain of title. The inspection of the chain begins with the current owner and ends with the property's original owner. All documents, from the mother deed to the most recent link deed, must be examined.
For instance, the property you're purchasing from existing owner A is purchased through general power of attorney from B. B bought it from C via a sale deed, and D gave it to C as a gift.
In this case, the property was transferred four times, and you'll need all four property documents, also known as link documents, for title verification.
The clear title will delegate further if the chain of titles is complete. However, if the continuity link is broken in the middle, it is a huge red flag because the title is clouded, and it is not recommended to proceed with the transaction.
People usually trust the paperwork provided by the seller, but it is always a good idea to seek certified copies of all linked documents and deeds from the Sub-Registrar office to ensure that the documents are valid.
The origin of the title
All required documents giving effect to property transferability must be examined for legality and reviewed to see if they are properly stamped and registered in such circumstances. Gift deeds, will documents, lease deeds, deeds of partition, and other documents include registered sale deeds, conveyance deeds, and title documents of current and past owners, as well as gift deeds, will documents, lease deeds, and deeds of division.
The nature of the transferor's right
The transferor's right to property ownership can be total or limited. When the owner has unrestricted possession, enjoyment, and disposal rights, ownership is said to be absolute. Otherwise, ownership is said to be limited. Transferor must have absolute right to dispose in order to complete a legitimate transfer.
As a result, it is necessary to verify the nature of the transferor's right when performing title verification. It enables us to determine if the property in question is transferable and whether the transferor has absolute authority to do so.
The nature of the transferor's entitlement to the property is reflected in the Record of Rights and Mutation records, which might be a potential source for verification.
The transferor's legal capability
It is vital to confirm the legal competency of the current owner and previous titleholders of such property when undertaking title verification. To complete a binding contract of sale or purchase, or any other kind of immovable property transfer, such as a lease or mortgage, they must be of legal age and sound mind.
If this is not the case, the transaction will not be completed without the authorization of the appropriate authority. For example, if the transferor is a Hindu, the Hindu Minority and Guardianship Act of 1956 requires the authorization of a guardian appointed by the appropriate court in order for the transfer to be valid.
As a result, it is necessary to verify that the transferor has the authority to make such a transfer and is legally capable of entering into a contract.
The nature of the property and the use of the land
It is vital to determine the nature of the property, whether it is government-owned or privately owned, during title verification. Any government-owned property cannot be further transferred or alienated without the consent of a competent authority, or the transfer will be null and void from the start.
Furthermore, property can be classified into two types based on its land use: agricultural land and non-agricultural land. It is vital to determine the land use or status of said property while doing title verification, whether it is agricultural or non-agricultural land. If the land isn't used for agriculture, it should be categorised as residential, commercial, institutional, or industrial.
Because knowing the land use pattern will assist the buyer in determining the property's utility. Only non-agricultural land, for example, can be used for residential purposes. If the property in question is certified as agricultural land after verification, you must apply for a land conversion with permission to utilize it for residential purposes. It is only suggested to proceed with the transaction if the conversion is approved.
This data, known as Khata Extract, is collected from the local municipal authorities' assessment register.
Construction and development
If there are any developments or construction on the property, it will add a few steps to the title verification process. It must be verified that the construction is being carried out in accordance with the building design and sanction plan as prescribed and approved by the local authorities.
In addition, builders must obtain different permits and approvals for infrastructure and utility facilities such as water, sewage, electricity, and environmental compliance, among other things.
Check the occupancy and completion certifications if the property is ready to move in. You should also look at the Khata certificate. When a new property is registered, a Khata number is assigned, and a Khata certificate is issued, stating that the property 'xyz' is registered in the name of person 'abc.' A Khata certificate is required to obtain water and electricity service.
As a result, it's a good idea to check whether all of the local construction requirements were followed and adhered with while conducting title verification.
Furthermore, if the property is still under development, it is critical to examine the following features:
- You must determine whether the developer is the landowner himself or has engaged into a joint development agreement with him. In the latter situation, the landowner and the developer must sign a power of attorney, which must be reviewed during title verification.
- It must be confirmed that the builder is adhering to all local building and safety regulations.
- It's also important to figure out if the constructor got all of the required permissions, authorizations, and approvals.
- You should check to see if the construction complies with the purchase agreement.
Property can sometimes be used as collateral for loans. It creates an encumbrance charge on the property, meaning the property is subject to a lien or mortgage and cannot be sold without the lender's approval.
Encumbrances, levies, liens, and mortgages must all be identified because they might have a negative impact on the property's title. As a result, it is recommended that when doing title verification, you have the property records inspected at the sub-office registrar's to confirm that there are no recorded encumbrances, charges, or mortgages in the name of any person, bank, or financial institution.
It's also a good idea to look for any liens on the property. There could be any loan and tax obligations, municipal liens, mechanic's liens, housing society claims for maintenance fees, and so on. However, the presence of these liens does not imply that these agencies can sell the property; rather, they have a charge on the property, which implies they have a right to be paid from the proceeds if the property is sold.
A no-encumbrances certificate can be obtained from the Sub-Registrar, Tehsildar, or other competent official after the examination.
There may also be some unregistered mortgages, thus original title documents must be thoroughly examined to reduce danger.
Similarly, if the property is owned by a corporation, the encumbrances must be examined with the Registrar of Corporations by reviewing the CHG-1 form. A search on the Ministry of Corporate Affairs' website will get the same results.
However, with the advent of digitalization, encumbrances can now be assessed online by providing appropriate property credentials on the official website of the pertinent registration agency.
It's also crucial to make sure there aren't any pending lawsuits involving the property in question. It can be found by conducting a search in the civil courts that have jurisdiction over the property in question.
The seller of the property may also be asked to provide information about any pending litigation, as he is required to do so under Section 55 of the Transfer of Property Act, 1882, which states that the seller is required to disclose any material defect in the property and to answer all questions posed to him by the buyer of the property regarding the property's title.
To further reduce risk, a representation can be made in the transaction document declaring that there are no encumbrances or current issues, and then putting obligation on the seller if there are.
Restrictions and exceptions
On the land, there are real covenants – Every housing society has bye-laws that must be followed. The constraints and allowances for construction on the property are outlined in such bye-laws.
For example, the society's bye-laws may prohibit you from covering balconies and open spaces, or you may be forced to adhere to a specific construction plan, or there may be parking restrictions, all of which should be addressed before investing in real estate. As a result, while conducting title verification, certain bye-laws must be reviewed.
Easementary rights - An easement is a legal term that simply means "right of way." It's possible that the owner granted a right of way to adjacent property, or that there were easements created for utility services, such as a portion of the property set aside for the installation and repair of water and sewage pipelines, electrical cables, and so on, which must be considered during title verification.
Notice to the public
Because some transactions remain unregistered and concealed even after due diligence, it is usually recommended to issue a public notice in at least two local newspapers for inviting claims and requesting objections with respect to the property in question in order to stay discreet. In the event that a disagreement occurs later, such publication will vouch for the buyer's actual and valid title ownership.
The property details and names of both parties to the transfer must be included in the notice, as well as a reasonable time window for raising objections.
Apart from the aforementioned considerations, it is usually advisable to physically survey the property in issue. This will offer a ground image of the survey plan as well as determine the actual position, dimension, area, and other details of the property, as well as highlight any encroachments. A physical survey will also enable you to determine whether any easements are missing from the documents.
What is a search report, exactly?
Following the aforementioned important elements, title verification is performed, and a Search Report is created based on the title verification findings. In essence, title verification is a process whose outcome is succinctly recorded in a Search Report.
The Title Search Report contains a historical record of the property's title and provides an accurate legal description of the property as to how it has been transacted over time and whether there are any risks involved in the transaction that could jeopardize the property's title, so you can be confident that you are investing in a legitimate property.
What should it contain?
The following elements must be included in a search report: –
- To begin, the search report must include information on the property's location, measurements, and area.
- It must specify if the property is owned by an individual, a corporation, a trust, or another legal entity. It should also provide a legal opinion on the subject, such as how the owner's legal personality may affect the property's title.
- It must include a table of scrutinized records, deeds, and documents, as well as a list of documents that have been validated by authorities.
- It must specify the nature of the transferor's right, including whether it is absolute in terms of enjoyment, possession, and disposal.
- It must state whether the property is subject to any charges, dues, or liens.
- It should state whether or not the property in question is mortgaged.
- It should reveal any encumbrances on the property, such as outstanding tax mortgages, overdue debts, and so on.
- If there is any third-party interest in the property, it must be disclosed in the Search Report.
- It must specify whether the property is the subject of any ongoing dispute or whether it is being acquired by the government.
- Finally, it must determine whether the property's title is clear and marketable.
- In addition, any special suggestion, comment, or opinion can be added at the end.
Who needs a report on a title search?
It is undeniably true that a Title Search Report is critical for any cautious buyer to determine whether or not a property is suitable for purchase. However, it is a mistake to believe that a title search report's utility is confined to a single person in a sale or purchase transaction.
Real estate transactions are a basic and important component of numerous sectors in today's world, and the requirement for a Title Search Report is no exception. So, let's have a look at who is most in need of a title search report -
Investors: The real estate business is particularly profitable in terms of investment because it delivers a larger long-term return. Furthermore, because real estate investments are capital intensive, extra caution must be exercised when engaging in such transactions.
NRI/OCIs are now permitted to invest in immovable property in India, which covers both residential and commercial property, under the FEMA (Non-Debt Instrument) Rules. They are especially vulnerable to title frauds since they live far away and are unaware of the ground reality of a property.
As a result, conducting a Title Verification before to investing in real estate is also recommended.
Companies: Companies frequently need to engage in real estate transactions for a variety of reasons. Lease, leave, and license transactions, as well as the purchase of immovable land for project development, are examples of these transactions. As a result, they must also undertake a title verification, which may be a comprehensive or limited search depending on the requirements and nature of the transaction.
Private lenders, including banks, financial institutions, and other financial entities: Banks, financial institutions, and other private lenders frequently provide loans with the security of immovable property. The goal of maintaining the property as security will be negated if the borrower does not have a marketable title to it. Before granting and disbursing the loan, they must ensure that the person seeking the loan has a clear title to the property pledged as collateral. They do, however, have a stable and robust network to do so.
The title of a property determines its worth. A property with a defective title is worthless; only a clear title can guarantee that you have the legal right to own and sell the property.
As a result, while investing in real estate, it's critical to check whether you'll have a clear marketable title, which establishes that your ownership rights are free of any doubts, hazards, or claims, encumbrances, or flaws.
Only when the transferor of the property has a good title to it can a clear and marketable title be obtained. As a result, it is usually advisable to complete a Title Verification before to entering into any arrangement involving real estate or immovable property. You must check and verify numerous data and documents connected to the property in issue in order to do so.