Missouri Real Estate Deeds: What's the Difference?
What’s a Deed and What’s the Difference?
In the world of real estate transactions, the term "deed" can have a number of different meanings. In my law firm’s representation of real estate investors, developers and property owners generally, it is not uncommon to find myself explaining to a client the difference between these various types of "deeds." This somewhat ambiguous term can prove to be understandably confusing even to experienced real estate investors and long-time property owners.
This article will help remove some confusion from these topics by detailing six important types of "deeds." It cannot be emphasized enough that each of these instruments is unique from each other. These are NOT interchangeable terms and are NOT interchangeable documents.
Quit Claim Deed
Quit claim deeds are, in many ways, the simplest type of deed in our discussion. These are sometimes mistakenly referred to as "quick-claim deeds," which term is incorrect and inaccurate. A quit claim deed states that the party executing (signing) the document transfers all of its interest that it may have in a particular parcel of real estate to another party, as named in the document. In other words, it is a transfer or conveyance instrument. However, a quit claim deed makes no warrant or claim that the party conveying its interest actually has title to the property to begin with. Instead, it simply conveys all of the interest (no matter how existent or non-existent) that the party has in the real estate. A quit claim deed is most often used in situations where there are questions or disputes regarding title, in inter-family transfers and in the funding of trusts or corporate entities.
General Warranty Deed
A general warranty deed conveys an ownership interest in real estate. However, unlike a quit claim deed, by signing a general warranty deed, the seller/grantor makes the following covenants:
(1) The Seller/Grantor owns the property
(2) The Seller/Grantor has a right to convey the property
(3) The property is free of encumbrances, except as noted
(4) The Seller/Grantor will defend title against claims by all persons
Due to the covenants made by the Seller/Grantor, a general warranty deed is the strongest form
of conveying property. As a purchaser, a general warranty deed is the most desirable instrument by which to obtain an ownership interest in property. i
Special Warranty Deed
In a similar fashion to a general warranty deed, a special warranty deed conveys an ownership interest in real estate with certain covenants by the seller/grantor. These covenants are as follows:
(1) The property is free and clear of encumbrances, except as noted
(2) The Seller/Grantor will defend title against all claims of persons making claims under the Seller/Grantor (in other words, parties claiming to have derived an ownership interest from the Seller/Grantor) ii
A beneficiary deed is used to convey property upon the death of the owner. The instrument is signed (and recorded with the local recorder of deeds) during the owner’s lifetime and names the party to receive the property, but the transfer does not actually occur until the owner dies. Specifically authorized by statute in Missouri (see Ch. 461.025 RSMo), a beneficiary deed is an effective estate planning tool. A beneficiary deed only transfers property upon death and is not effective to convey any present interest while the owner remains living.
Deed of Trust
A deed of trust is an instrument by which a lender or similar party takes a "security interest" in a parcel of real estate. Practically speaking, a "security interest" is not an immediate outright transfer of the property, but instead merely gives the lender/grantee the right to foreclose on and sell the property if the borrower/grantor fails to keep up its end of a related loan agreement. Accordingly, a deed of trust is typically prepared in conjunction with a loan and promissory note. A deed of trust is similar to a mortgage.
Legally speaking, the deed of trust actually transfers the property to a named "trustee" who allows the current owner to continue to use the real estate, except that if and when the borrower/grantor defaults on the related loan, the trustee would foreclose on the property, essentially acting on behalf of the lender/grantee. Summarized simply, a deed of trust is a mortgage-like document, used in Missouri in place of an actual mortgage.
Deed of Release
A deed of release is typically signed by a lien holder or mortgagee (i.e. a lender) when a lien on property is going to be released. For example, a bank (who has had a lien on property in the form of a deed of trust) would execute a deed of release after the underlying loan is paid off by the debtor. The deed of release effectively cancels the deed of trust. Missouri law requires that a lien holder provide a deed of release within 15 days of a borrower paying off the related loan and making a formal request for a deed of release (see Ch. 443.130 RSMo). Once recorded with the local recorder of deeds office, a deed of release terminates the lien holder’s interest that had been created by the deed of trust.