An indemnity deed of trust is a real estate recordable document used in Maryland to avoid payment of recordation and transfer taxes in real estate transactions. The state and each local jurisdiction impose recordation taxes and transfer taxes on the recordation documents that transfer an interest in land. Recordation and transfer taxes are due when the deed of trust is recorded. The taxes are based on the consideration passing under the document to be recorded, which is usually the amount of the debt secured.
Indemnity deeds of trust are deeds of trust that are granted by someone other than the borrower–usually a guarantor. In this type of deed, the grantor under the deed of trust is not primarily liable for the loan and the indemnity deed of trust secures the grantor's collateral interest and secondary liability and not the primary liability of the borrower. The owner who is giving the deed is not the primary oligor. Indemnity deeds of trust would not be used in a purchase money transaction or a refinance. An indemnity deed of trust and deed of trust are distinguished by the recitals in the indemnity deed of trust that establish the indemnification relationship.
In an indemnity transaction, an entity related to the landowner borrows money and contributes or loans the proceeds of the loan to the landowner. The landowner guarantees the borrower's repayment of the debt and secures its guaranty obligation by an indemnity deed of trust. Because the guaranty obligation is not then due, there is no taxation of a current debt.
Fraudulent conveyance risks may be associated with the indemnity deed of trust structure. Fraudulent conveyance risks and related documentation concerns should be discussed with a lawyer before using an indemnity deed of trust structure and when drafting pertinent documents.
