Generally, Agents National Title authorizes its agents to insure gift deeds provided the circumstance under which the gift deed is given is otherwise normal and the deed being insured contains the proper warranties. Interfamily and inter-spousal transactions are common scenarios.
However, when insuring property conveyed by gift deed, it is extremely important to investigate the circumstances under which the deed was given. What are the circumstances under which the transaction came about? Be aware of unusual circumstances or answers to your inquiries. Independent verification of the intent of the grantor should be established whenever possible. In any questionable situation, contact Agents National Title legal counsel before issuing the Company’s commitment or policy. Also, run the grantor(s) name for judgments. Were there liens filed shortly before or after the deed was conveyed? Is there pending litigation, or are you otherwise aware of possible litigation against the grantors? If so, the property may have been conveyed to avoid the creditors and the deed might possibly be set aside as a fraudulent transfer. Exceptions for judgments against the grantor, as well as liens which have been recorded prior to the proposed insured deed or mortgage, must be made.
In addition, an exception should be made regarding possible liens for federal and/or state gift taxes as follows:
“Any lien for federal or state gift tax payable by reason of the transfer from ‘A’ to ‘B’.”
In situations where an owner’s policy is requested on property where the title is acquired by a gift deed, the policy must be written in the amount of the fair market value of the property as established by an acceptable appraisal or other valuation means.
If the seller/mortgagor under the current transaction obtained title via a gift deed, it is recommended that the grantor/donor of such gift deed execute an affidavit, acceptable to Agents National Title, acknowledging that he or she was (and remains) competent at and since the date the gift was made; that the gift was voluntary; that the grantor/donor was solvent at the time of transfer and was not made insolvent there from; and specifically, that the grantor/donor did not make such conveyance in order to defraud or hinder any of the grantor/donor’s creditors.
Finally, the following exception needs to be raised if a gift deed appears in the chain of title and any judgments appear against the grantor:
The conveyance from ___________ to ____________, date __/__/____, recorded __/__/____, in Liber/Reel/Book _____ at page _______, appears to have been made for no (or inadequate) consideration. The following judgment(s) appears against the grantor. The judgment(s) must be
disposed of or the circumstances explained to the satisfaction of the Company because of the possibility that the conveyance may be set aside as a fraudulent conveyance to defraud creditors.
Note: Gift deeds or deeds supported by nominal or no consideration, particularly among family members have been shown frequently to be fraudulent. A typical scenario included a gift deed to a family member and, shortly thereafter (but not part of the same transaction), a mortgage loan secured by the property is taken out by the grantee of the deed. No loan payments are ever made by the borrower and when the lender institutes foreclosure, the true owners of the property maintain that the gift deed was a forgery and the property was never conveyed. Although not always the case, loans of this nature are frequently made by “hard money lenders” who charge high fees and interest rates because of the high risk of the loan. Extra precautions should be taken as outlined above when insuring a gift deed or a loan to the grantee of a gift deed.