Let's Talk About Deeds
Some Deed BasicsWhile requirements for a valid deed vary from state to state, some things are fairly universal. Deeds should be in writing, identify the parties, specify the marital status of the parties, describe the property being transferred (legal description, not just address), contain a conveyance clause (seller hereby conveys to buyer...), contain the signature of the seller, be notarized and be witnessed by at least two disinterested witnesses, The seller must have legal capacity to sell, that is, be mentally competent and not under duress. The buyer must accept the deed during the seller's lifetime. While recording deeds isn't mandatory, it is the most important step in asserting the buyer's ownership and should never be delayed as liens against the seller can attach during such time and the seller can perpetuate a fraudulent sale to another party if there is no notice of the first transfer.
Each state has specific requirements and customary (sometimes statutory) forms of deed.
The (General) Warranty DeedThe general warranty deed is the most commonly used form of deed, it warrants (guarantees) title to the property to the purchaser. The seller warrants the he has good title, free of claims by anyone else; that there are no undisclosed encumbrances (some title matters such as homeowners association covenenants, easements, or even a mortgage may be excepted from the warranty as long as they are disclosed on the deed itself) and that he will defend title against any such claims. The seller's warranty of title applies even to title defects arising before he took title.
In practice, a seller's warranty is difficult to enforce, therefore a title insurance policy is obtained and can be relied upon should a title defect arising before the sale date become known. The title insurance company will be responsible for clearing the title defect and subsequently seeking restitution from the seller if possible.
A warranty deed is the buyer's best assurance of obtaining clear, insurable title.
The Special Warranty DeedThe special warranty deed is the same as the general warranty deed discussed above except that the seller's warranties are limited to the seller's period of ownership. In other words, the seller does not warrant against title defects arising prior to his acquisition of the property.
The SWD is most often used by developers and by lenders deeding property taken in foreclosure or other debt cancellation procedures. As with the general warranty deed, a title insurance policy is the buyer's ultimate form of enforcement of the seller's warranties and the policy will not be limited to the seller's time of ownership - it will cover all prior title defects not specifically excepted.
The Grant DeedThe grant deed is most commonly used in California and some other western states. In a grant deed, the seller represents that he has good title and that there are no undisclosed encumbrances. However, unlike a warranty deed, the seller does not warrant those representations and thus is not financially responsible for any title defects which remain undiscovered until after the transfer date.
The Quit Claim DeedThe most misused deed is the quit claim deed. It's very name should steer you away! In a QCD, the seller makes no warranties or representations of any kind. The seller is saying "whatever interest in this property, if any, that I own, I convey to buyer".
The QCD is best reserved for clearing boundary disputes between adjacent landowners and other forms of title dispute resolution. While it is often used in dissolution of marriage cases as a form of transfer between the former spouses, even a special warranty deed would be better protection for the receiving person.
In some instances, a quit claim deed in the chain of title can render title uninsurable. This can cause serious problems when the buyer subsequently decides to sell the property. A quit claim deed provides the borrower no assurance whatsoever that he is getting title to the property and should not be relied upon if an actual transfer is the objective.
Deed in Lieu of ForeclosureThe deed in lieu of foreclosure is more a description of the reason than of the instrument. A borrower in default and unable to sell the property, may negotiate with his lender to transfer the property to the lender to avoid the expense and credit damage of foreclosure proceedings. Despite the term, however, the deed used is most often a standard warranty deed or grant deed (depending on the state).
A deed in lieu will be reported in the borrower's credit history; while it is not as damaging as a foreclosure, it is a derogatory entry. Borrowers considering a deed in lieu should obtain a written deed in lieu agreement from the lender which specifies the conditions of the transaction and limits or eliminates the lender's right to pursue the borrower for any further amounts due.
Some Involuntary DeedsNot all deeds are the result of voluntary action. Involuntary deeds present special problems, especially for title insurance and the transaction should be carefully coordinated with the title insurance company. Following are some brief examples.
Tax Deed: The county or other taxing authority may, under certain circumstances, sell a property to collect unpaid taxes.
Trustee's Deed: In deed of trust states, the trustee conducting a foreclosure will execute a deed to the winning bidder at auction.
Executor's Deed: In many states the executor of an estate has the power to sell real property belonging to the deceased.
Final ThoughtsReal property law is a very state-specific matter and this guide is only intended to provide the most basic treatment of the subject of deeds. There are a host of potential problem areas in any conveyance of real property, such as the rights of heirs, rights of spouses, clearing title defects, old mortgages, corporate owners' capacity, form of ownership to be taken, legal description accuracy, insurability of title and many, many more.
You should always seek the advice of a lawyer when buying or selling real property, the money involved and the difficulty of correcting errors amply justifies the relatively small cost.