Indemnity Insurance of Deed of Gift Bank conveyancing instructions

Birmingham Midshires and Accord, as with most lenders, set their own requirements when it comes to deed of gift indemnity insurance. The content herein aims to help property law firms on the different bank approved list of panel lawyers where the title to be charged incorporates deed of gift. Solicitors should still check the Council of Mortgage Lenders’ handbook requirements for each mortgage company, whether it be Nationwide, RBS or Yorkshire Building Society. The content on this page is not focused on deed of gift indemnity insurance requirements.

Need help with deed of gift indemnity insurance from your lender?

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As a conveyancing lawyer on a mortgage company panel, you must notify to the mortgage company if you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed loan. You must be satisfied that the lender will acquire their interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against their security being set aside. Where you are not able to submit an unqualified COT, you must put in place transfer at undervalue or deed of gift indemnity insurance .

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

About Deed of Gift Indemnity Insurance

Deed of Gift Cover is typically required owing to an expected or existing transfer at undervalue or deed of gift including gifts of money towards the buying 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.

HSBC and Coventry BS like the majority of mortgage companies, obligations require that where deed of gift indemnity insurance is effected:

• your firm are responsible for approving the terms of the deed of gift policy on behalf of the mortgage company
• the deed of gift indemnity insurance policy must not contain terms which you know would invalidate or compromise the interests of the bank
• you is duty bound to spell out to the mortgagor that the borrower must comply with any conditions of the deed of gift indemnity insurance policy and that the mortgagor should notify the lender of any notice or potential claim in respect of the policy
• the deed of gift indemnity insurance policy should be placed on risk without charge to the mortgage company
• the deed of gift indemnity insurance policy must be in favor of the bank and, wherever possible, in favour of the mortgagor and any next registered proprietor or lender. Where the borrower will not be covered by the deed of gift indemnity insurance policy, the borrower needs to be advised accordingly.
• your practice must provide a duplicate of the deed of gift indemnity insurance to the mortgagor and explain to the borrower why the deed of gift indemnity insurance policy was effected and that additional insurance may be required if there is additional lending against the mortgaged property
• your practice is obliged to disclose to the insurer all relevant information which you have acquired
• the level of indemnity must meet the requirements for the lender (See Part II Handbook requirements )

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 CML handbook PII requirements for mortgage companies:

Non lender-specific considerations

The full terms, conditions and exclusions for deed of gift indemnity insurance are identified in the policy document. Property lawyers are obliged to point the borrower 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 set out in the policy schedule - so it is essential check any draft to ensure it is as it should be. The continuance of this non-investment insurance contract is in perpetuity unless the policy says something to the contrary. It is well worth checking that the time frame is correct.

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Deed of Gift Contingency insurance: Significant characteristics and benefits:

This policy would usually provide protection from financial loss that might arise in the event of a third party making a cliam in respect of the risks identified in the policy document. Deed of Gift indemnity insurance Policies are likely to cover the following

• Money paid with the written consent of the insurance company to free the land from 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, including legal and associated costs.
• All ancillary costs and expenses incurred by the Insured with the written consent of the relevant insurance company
• The out of pocket expenses 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.
• Loss in market value due to the successful enforcement of the risks specified in the deed of gift indemnity insurance.
• The cost of works (including professional fees) for the purpose of the development begun, or contracted for, before the commencement of proceedings for the enforcement of the risks specified in the deed of gift insurance, to the extent that such costs are rendered abortive by court decision.

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The above information is in relation to properties in England and Wales.