Real estate purchases are expensive and for some it is their entire life savings. With such high value tagged to the purchase, it is only right to plug any hole that can result in financial loss, disputes, liabilities etc. Issue of a letter of indemnity (LOI) is an armour that will protect both parties – buyer and seller in case the deal falls flat. In this guide, we highlight the significance, advantages and what a letter of indemnity actually includes. Read on!
What is a letter of indemnity (LoI)?
A legal document that safeguards against potential losses or damages is called the letter of indemnity. This legal document is used in the realty industry to protect people from any possible financial loss that may happen owing to the transaction. This document states the terms and conditions with respect to a property deal is like a guarantee that is legally valid in the court of law. Hence, this should be drafted only be legal professionals.
Who should draft the letter of indemnity?
As the letter of indemnity is a legal document, it has to be drafted by legally qualified professionals.
Why do you need letter of indemnity?
- The letter of indemnity protects the affected party from the financial loss that he can incur.
- It will also clearly establish the shortcomings of the deal because of which it couldn’t be completed.
- Owing to the guarantee it provides, it gives both the seller and the buyer the confidence to proceed with the transaction.
What are the contents in a letter of indemnity?
| People involved | Details of all parties who are involved in a transaction
· Buyer · Seller · Brokers · Lawyers etc. |
| Description of property | · Area of the property
· Location · Address · Facilities it comes with · Any other detail related to the property. |
| Indemnification clause | · Responsibility of each party included in the LoI.
· It will clearly mention who will be responsible in case of legal claims. |
| Termination clause | · Listed will be conditions according to which the transaction can be terminated in case it doesn’t happen the way it was supposed to be. |
| Legal rules | · Mention of rules that will apply in case of any problem in the real estate transaction. |
| Signature | · Signatures of all parties listed in the LoI. |
Who issues the letter of indemnity?
In a property transaction, a letter of indemnity is issued by the bank or the financial institution that will be responsible for helping with the finances in terms of home loan.
How can a buyer get letter of indemnity?
- Know the terms and conditions of the seller. Check the property to be purchased for any disputes or encumbrances and accordingly negotiate.
- Approach the bank or non-banking financial company (NBFC) for the letter of indemnity.
- Check the letter of indemnity received, get it signed by all parties involved.
Housing.com POV
It is a must to do thorough due-diligence before entering into a property transaction. Among others, the pointers to check will be if the property’s blue print is legally complaint, the seller/buyer’s background, the pricing of the property etc. In addition to this, having a letter of indemnity will be an additional layer of protection that is recommended so that the parties involved in the property transaction don’t suffer any financial loss.
FAQs
What is a letter of indemnity?
A letter of indemnity is a legal document that ensures that certain conditions are met by two or more parties.
Who can draft the letter of indemnity?
A legally qualified professional can draft the letter of indemnity.
Where is the letter of indemnity used?
It is used in real estate transactions.
Who issues a letter of indemnity?
A letter of indemnity is issued by the bank or the mortgage institution.
What is the role of the letter of indemnity?
The letter of indemnity can reduce the risk of breach of agreement between real estate buyers and sellers.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
