Indemnity Insurance of Deed of Gift Bank conveyancing obligations

Coventry BS and Birmingham Midshires, as with most lenders, have their own specific instructions when it comes to deed of gift indemnity insurance. This page is designed to help conveyancing solicitors on the different lender approved list of panel lawyers where the title to be charged incorporates deed of gift. Solicitors should still check the CML handbook requirements for each bank, be it Chelsea BS, Skipton or Barnsley BS. The information on this page Is not to be read as deed of gift indemnity insurance advice.

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In your capacity as a solicitor on a bank panel, you must report to the mortgage company where it comes to your attention that the title to the property was subject to a deed of gift or a transaction at an apparent undervalue completed inside five years of the proposed charge. You need to be satisfied that the mortgage company will not be compromised under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. Where you are unable to issue an unqualified COT, you must arrange transfer at undervalue or deed of gift indemnity insurance .

You must also obtain clear bankruptcy searches against all parties to any deed of gift or transaction at an apparent undervalue.

About Deed of Gift Indemnity Insurance

Thousands of lawyers across the country regularly rely on Deed of Gift policies owing to an expected or existing transfer at undervalue or deed of gift including gifts of money towards the acquisition of a property. The potential loss arises where the person who transferred or “gifted” the property (or the money) becomes insolvent their Trustee in Bankruptcy could set aside the transfer and claim an interest in the property.

Accord and Lloyds TSB in common with the majority of mortgage companies, requirements are that where deed of gift indemnity insurance is to be put on risk:

  • you is obliged to disclose to the insurer all relevant information which you have acquired
  • your practice are responsible for approving the terms of the deed of gift policy on behalf of the lender
  • the deed of gift indemnity insurance policy should be placed on risk without expense to the lender
  • the deed of gift indemnity insurance policy must not contain conditions which you are aware would invalidate or compromise the interests of the bank
  • the deed of gift indemnity insurance policy needs to be in favor of the mortgage company and, wherever possible, in favour of the borrower and any subsequent owner or mortgagee. Where the borrower will not be covered by the deed of gift indemnity insurance policy, you must advise the borrower of this fact.
  • you is duty bound to explain to the borrower that the borrower is obliged to adhere to any conditions of the deed of gift indemnity insurance policy and that the borrower should notify the lender of any notice or potential claim in relation to the insurance
  • the minimum level of cover for the policy must meet the requirements for the mortgage company (see UK Finance Lenders’ Handbook Part 2 )
  • your firm must send a copy of the deed of gift indemnity insurance to the borrower and explain to the borrower why the deed of gift indemnity insurance policy was effected and that a further policy might be required if there is additional borrowing against the security of the property
Regarding the extent of cover for the deed of gift indemnity insurance policy (or for that matter any indemnity insurance), consider the following sampling of Section 9.2 of the Part 2 requirements for lenders:
Lender Requirement
Accord Buy to Let An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgagee.
Bank of Ireland The limit of indemnity must be an amount not less than the market value of the property.
Bank of Scotland Not less than mortgage advance plus 10%
Dudley Building Society Purchase price or valuation, whichever is higher.
Family Building Society An amount at least equal to the mortgage advance.
Godiva Mortgages Minimum of the value of the property.
ITL Mortgages Minimum of the value of the property.
Kensington Mortgage Must be for a minimum of 110% of the purchase price or valuation whichever is the greatest.
Landmark Preference for full market value of the property, but if this level of cover is not available, will accept a minimum of the actual loan amount. You must approve the policy on our behalf.
Leeds Building Society An amount at least equal to the amount of the mortgage advance plus 10%. Any indemnity insurance policy must protect the borrowers, any successor in title and any Mortgagee.
Lloyds The value of the property.
Molo Finance Buy to Let An amount at least equal to the amount of the mortgage advance. Any indemnity insurance policy must protect the borrowers, any successors in title and any mortgages.
National Counties Building Society An amount at least equal to the mortgage advance.
Platform 110% of principal sum.
Principality Building Society Full market value of the property is preferred but if this is not available we will accept the loan advance amount as minimum. You must approve the policy on our behalf. The estimated property value is stated in the Mortgage Offer in remortgage cases. Otherwise it will be stipulated in the Valuation.
Tesco Bank An amount equal to the value of the property.
RBS- First Active An amount equal to the value of the property.
Royal Bank of Scotland -Natwest One An amount equal to the value of the property.
Whistletree The value of the property

Deed of Gift Contingency Insurance : Reflections

The full terms, conditions and exclusions for deed of gift indemnity insurance are identified in the policy document. Conveyancing Practitioners are obliged to point your non-lender client to the deed of gift indemnity insurance policy document. The intention of deed of gift indemnity insurance is to grant indemnity in respect of the risks specified in the policy schedule - so you should check the document to ensure it is correct. The lifetime of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. Adequacy in this regard should be checked.

Significant features and benefits of deed of gift Contingency insurance :

Protection via such a policy is to cover the risk of third parties looking to enforce rights that can affect the use of a property. Deed of Gift indemnity insurance Cover normally includes
  • All ancillary costs and expenses incurred by the Insured with consent in writing from the relevant insurer
  • Market value reduction due to the successful enforcement of the risks specified in the deed of gift insurance.
  • Reimbursement for compensation incurred in any proceedings in respect of the risks specified in the deed of gift indemnity insurance, as well as legal and associated costs.
  • The cost of altering or demolishing all, or part of the development and the reinstatement of the land, insofar as such alteration, demolition or re-instatement is made necessary by court order.
  • The cost of works (including architects’ and surveyors’ fees) for the purpose of the development begun, or contracted for, prior to proceedings for the enforcement of the risks specified in the deed of gift indemnity insurance, to the extent that such costs are rendered abortive by court decision.
  • Money paid with consent in writing from the insurance company to free the property from the risks specified in the deed of gift insurance.
Information provided on this webpage is for general information for conveyancers and solicitors in England and Wales on the the mortgage company conveyancing panel, it does not constitute advice for members of the public who should contact their lawyer for advice relating to the mortgage company indemnity insurance. Whilst we endeavour to keep the information up to date and correct we do not make any representation or warranties of any kind about its completeness, accuracy, reliability or suitability. Any reliance you place on the information is strictly at your own risk. Lexsure will not be liable for any direct or indirect loss or damage arising out of or in connection with the use of this information. An important exclusion applying to most deed of gift Policies is if you make any contact with any party who might cause a claim under the Policy, it can invalidate the cover.

The content set out above is in relation to properties in England and Wales.

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