Written by attorney Gregory James Glaser

Selling Your Home - Using A Purchase Agreement, Deed, Escrow, and Title Report

Basic Definitions A real estate purchase agreement is a detailed contract between the buyer and seller to document the terms of the property sale that will transfer the deed. A deed is a short legal document (usually 1-2 pages) that the buyer receives at the close of escrow to show that the buyer is the new owner of the land. Escrow is the process/method used by the parties to complete the home sale with the help of a third party (usually a title company or an attorney), to ensure that all the paperwork and money is transferred and documented properly. A title report is usually provided to the buyer and seller by the escrow company, and it shows who currently owns the property, and the existence of any encumbrances. An encumbrance is a legal right or obligation attached to the property, such as a mortgage or easement. Deed Deeds are usually prepared by a title company or attorney, then notarized, and then filed with the clerk-recorder of the County where the property is located. A deed specifies the manner in which the buyer owns the property, such as "Individually," "Community Property," or "As Trustee for the Jones Family Living Trust." Generally, there are three types of deeds used in California: • Quitclaim Deed - transfers to the buyer whatever rights and interests the seller has in the property. These are common in California, except as applied to home sales because of the difficulty of obtaining title insurance on a quitclaim deed. • Grant Deed – like a quitclaim deed, a grant deed also transfers to the buyer whatever rights and interests the seller has in the property. But a grant deed goes further and contains the seller's promise that he (1) has not conveyed the same property (or any right, title or interest in the property) to any person other than the buyer; and (2) the property is presently free from encumbrances not otherwise disclosed by the buyer. Grant deeds are common in California, and are the standard type of deed used for home sales. • Warranty Deed - These are the same as a grant deed, but contain the following additional promise by the seller: if any 3rd party later claims an interest in the property relating to an encumbrance not disclosed by seller, then the seller will hire and pay an attorney for the buyer in order to defend/improve the title. Warranty deeds are not very common in California. Title Report A preliminary title report is a helpful document to use when examining a deed. In the typical home sale, the buyer obtains a preliminary title report from the escrow company, which will specify who owns the property, and whether there are any liens (mortgages), easements, or other restrictions (encumbrances) limiting anybody's use and/or ownership of the Property. A preliminary title report is not an insurance policy. It is what comes before an insurance policy is issued. In a legal sense it is only an offer by the title insurer to issue a policy of title insurance, and might not even list every encumbrance affecting title. Virtually all properties on the market have encumbrances, and unless you are the undisputed ruler of your entire nation, you can probably expect that somebody else is claiming some ownership interests over the land (i.e., mineral rights, yearly tax assessments). Indeed, occasionally the title report is wrong, and official records later reveal that the seller was only a partial owner, or an easement was larger than everyone thought, or something like that. This is often described as a cloud on title. So, title insurance is a way to make sure that in the event of an error or cloud on title, the buyer can get a refund of the purchase price. Typically, title insurance is purchased by the buyer for his own benefit to cover the purchase price of the real property.

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