As with so many legal terms, one uses the word and concept “title deed” often whether one is engaged in real estate business or not. One wishes to obtain a “deed” to a piece of property and generally understands that in order to own the property one must be named on the “deed.”
But what is a title deed and what is the legal effect of the various types of title deeds or recording the deed? What happens if one is granted a defective title deed and how does a deed get negated by adverse possession?
This article shall outline the basic law of title deeds.
What is a Deed?
In its most basic definition, a title deed is a document that vests ownership in a person and conforms to various requirements imposed by state law as to what must be contained on the deed. It normally has a “legal description “ of the land or real estate right granted, which is a detailed description of the location of the land, often created by surveys. The document indicates who owns the property and usually who granted the deed to the current owner.
Recording deeds is a system of recording legal instruments at the Recorder of Deeds. The Recorder of Deeds is a local government office which maintains records and documents relating to real estate ownership.
A deed to real property becomes a public document when it is recorded with the Recorder of Deeds subsequent to delivery and acceptance. The initial step in the recording process is the presentation of deed along with copies to the recorder’s office in the county where the property is located. The copy of the deed is inserted into the current book of official records in numerical order. A map of the property is also included as a part of the document for identification purposes. The original deed is returned to the owner of the property from the office of the recorder after proper entry.
The office of the Recorder of Deeds maintains a set of indexes about each deed recorded, for an easy search. Almost all states have a grantor-grantee index including a reference to all documents recorded. These indexes are classified according to time periods.
Title deeds do not have to be recorded. Recording is filing them in the county recorder’s office and if recorded, the title deed acts as defacto notice to all third parties as to ownership in the property. Note that a bona fide purchaser is one who has reasonable cause to believe that title is vested in him or her, e.g. either by mistake or fraud, a person granted a false deed to the bona fide purchaser. In certain circumstances a bona fide purchaser may even have superior rights to the property over the actual title holder. If one records the deed, then there can be no bona fide purchasers (unless one acts oneself to void one’s deed) since notice of true ownership is given to the world. Thus, recording increases the protection of the deed.
Chain of title is simply the history of the deeds ownerships over time, from the original owner of the property to the present owner. A break in the chain of title occurs when there is a period in which there appears to record owner that precedes the current owner. Thus, if W granted X title and X granted title to Y, but Z shows no title from Y but has name on title from A, there is a break in continuity of title and true ownership may not be demonstrated by the deeds alone.
Most deeds must be notarized to be effective. If not recorded, the actual physical deed must be held by the owner to demonstrate ownership and if lost, requires a complex court action to demonstrate good title to the land.
Types of Deeds:
QUIT CLAIM DEED:
A quitclaim deed is a term used to describe a document by which a person transfers or quits any interest that person may have in a piece of real property and passes title to another person. The party receiving title to the property acquires only those interests and rights that the grantor previously had. A quitclaim deed releases the grantor’s interest in property without stating the nature of the person’s interest or rights, and with no warranties of ownership or encumbrances on the property. While a quitclaim deed neither warrants nor professes that the grantor’s claim is valid, it prevents the grantor from later claiming any interest in the property. Quitclaim deeds are sometimes used for transfers between family members, gifts, placing personal property into a business entity, or in other special or unusual circumstances.
Quitclaim deeds are often used in divorces, where one party grants to the other full interest in property that they previously held as joint tenants. For example, if a husband and wife owned a home in joint tenancy, and the wife is awarded the home via divorce decree, the husband could execute a quitclaim deed to eliminate his interest in the property. A quitclaim deed only changes title to the property, not responsibility for the mortgage. The husband could still be liable for the home loan and could be financially responsible if the wife were to default on the property unless he also takes measures to remove himself from the mortgage. In the above example, the husband would have no interest in the property — if the wife sold the property, the husband would have no claim to money gained from the sale. Quitclaim deeds are also used in tax sales where property is auctioned off to pay outstanding tax debt.
A grant deed is a term used to describe a document by which a person transfers or quits any interest that the person may have in a piece of real property and passes title to another person and warrants ownership and states the nature of the person’s interest or rights.
The grant deed is the most common type of deed used in the selling of property. A grant deed must describe the property by legal description of boundaries and/or parcel numbers. A grant deed warrants that the grantor actually owned the title to transfer. The deed must be signed by the grantor and the grantee. The deed must be acknowledged before a notary public or other official authorized by law to administer oaths. The reason for notarizing is to provide evidence that the document is genuine as transaction documents are sometimes forged. The grant deed is normally recorded in the County Recorder or Recorder of Deeds. The deed declares that the property has not been sold to anyone else and the property is not laden with obstructions other than those items already disclosed to the grantee. It also makes the promise that the grantor has the legal right to sell the property listed in the grant deed.
A beneficiary deed is a document that expresses an interest in real property, including any debt to a beneficiary. The person who receives the real property in a beneficiary deed is referred to as the beneficiary. A beneficiary deed expressly indicates that the deed is effective on the death of the owner. The transfer of interest to the beneficiary is associated with all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges and other encumbrances made by the owner. A beneficiary deed is an important document. It allows a smooth transfer of ownership between past and present owners.
A beneficiary deed may delegate to multiple grantees. Such grantees take title of the real property as joint tenants and get a right of survivorship as tenants in common. Sometimes, a beneficiary deed may delegate successor beneficiaries.
In a beneficiary deed, there is no change in current ownership and the owner enjoys absolute control in real property. The owner can sell, gift or exchange the real property even if a beneficiary deed is executed. The owner can annul or cancel the beneficiary deed at any time. Beneficiary deeds are suitable for real properties such as land, homes, ranches, condos, time-share, and mineral interests.
A person may own interest in real property only for the term of his or her life. This is called a life estate and is so designated on the title deed. The person who receive the property upon the death of the holder of the life estate is termed the remainder man. There are usually restrictions on what the person holding the life estate can do with the property so as to protect the remainder interests, but during the life of the life estate holder, that person has exclusive right to use the property. Note, however, that the owner of a life estate cannot transfer more than he or she owns, e.g. the life estate only can be transferred to a third party.
DEED OF TRUST:
A deed of trust is a transfer of interest in land by a mortgagor-borrower to a mortgagee-lender to secure the payment of the borrower’s debt. A deed of trust is an arrangement among three parties: the borrower, the lender, and an impartial trustee which is an entity that holds “bare or legal” title. The borrower transfers legal title to real property to the trustee who holds it as security for the loan. The borrower retains equitable title to, and possession of, the property. The trust deed is recorded with the County Recorder where the property is located as evidence of and security for the debt.
When the loan is fully paid, the monetary claim on the title is transferred to the borrower by reconveyance to release the debt obligation. If the borrower defaults in the payment of the debt, the trustee has the right to sell the property and pay the lender the proceeds to satisfy the debt. The trustee will return surplus amount, if any, to the borrower.
The right of the trustee to sell the premises is called foreclosure by power of sale. A foreclosure by power of sale is neither supervised nor confirmed by a court. The procedure for a foreclosure by power of sale is regulated by statute. All interested parties must be given notice of the sale, which must be published in local newspapers, usually in the public notice columns, for a certain period of time as required by statute. The sale is usually open to the public at auction to ensure that the property will be sold at its fair market value.
Trust deeds are the most common instrument used in the financing of real estate purchases in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, New Mexico, North Carolina, Texas, Virginia and West Virginia.
DEED IN LIEU OF FORCLOSURE:
A Deed in lieu of foreclosure is a written legal instrument in which a mortgagor (the borrower) conveys all interest in a real property to the mortgagee (the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
The borrower in a deed in lieu of foreclosure is released from most, if not all, of the personal indebtedness coupled with the defaulted loan. The borrower also avoids the public dishonor of a foreclosure proceeding.
The lender in a deed in lieu of foreclosure benefits from a reduction in the time of foreclosure process. The lender also enjoys a reduction in the cost of repossession and avoids the added delay and costs associated with the possibility of the borrower filing for bankruptcy.
The indebtedness in a deed in lieu of foreclosure is secured by the transfer of real property. In a deed in lieu of foreclosure, the borrower and the lender enter into the transaction voluntarily. This deed must contain a total consideration equivalent to the fair market value of the real property conveyed.
A warranty deed ensures that the title conveyed over property is full and free from encumbrances. It establishes trust between a buyer and a seller because the seller covenants that he will protect the buyer against any claim on the property. In short, a warranty deed makes a seller accountable to the buyer.
Usually mortgage lenders require a warranty deed before they finance any transaction based on a property. Through a warranty deed, a seller assures the buyer that the transaction is legal, proper and the title uncontested. Before a warranty deed is issued, a professional title company conducts a research on the title of the property and also delves into the history of the property to make sure that there are no legal problems. When a warranty deed is in place, a buyer usually need not worry about state of title or if a seller’s unpaid creditors will be staking claim on it. It ensures that title to property is full and final.
A tax deed is a legal document that provides written proof of ownership of real property acquired from the government at a tax sale. A tax sale is conducted by the government after a stipulated period of time for the non-payment of tax on real property.
Real property taxes are considered delinquent if not paid within a prescribed period of time. The property owner has an obligation to pay the real property taxes and failure to do so may result in a tax lien on the property and eventually a tax deed sale.
At a tax deed sale, the minimum bid is generally the amount of back taxes owed plus interest and costs associated with selling the property. In the event the property is not purchased, title may revert to the county government. In most jurisdictions, the county transfers title in a tax deed sale through either a Tax Deed or a Sheriff’s Deed.
California Specific Deed Law:
Warranty Deed – If a deed is intended to be a general warranty deed, it should contain a phase specified by state law such as the phrase “conveys and warrants”. These words, called operative words of conveyance, carry with them several warranties which the grantor is making to the grantee. Examples of the warranties are:
First, the grantor warrants that the grantor is the lawful owner of the property at the time the deed is made and delivered and that the grantor has the right to convey the property.
Second, the grantor warrants that the property is free from all encumbrances or liens.
Third, the grantor warrants that he or she will defend title to the estate so that the grantee and the grantee’s heirs and assigns may enjoy quiet and peaceable possession of the premises with the power to convey the property.
Quitclaim Deed – A quit claim deed conveys to the grantee and the grantee’s heirs and assigns in fee all of the legal or equitable rights the grantor has in the property that existed at the time of the conveyance. An example of operative words of conveyance are “convey and quit claim.” There are no warranties of title.
Special Warranty Deed – In contrast to a general warranty deed, a special warranty deed limits the liability of the grantor by warranting only what the deed explicitly states. A special warranty deed has practically the same effect as a quitclaim deed. Special warranty deeds are generally used by corporations or other entities that want to avoid assuming the liability of a general warranty deed. Like the general warranty deed, the special warranty deed should contain the appropriate language such as “conveys and specially warrants.” Usually, the grantor warrants that he or she did nothing to impair title during the period the grantor held the title. While a special warranty deed may contain covenants of title, these covenants will usually cover only those claims arising by, through, or under the grantor.
Fiduciary Deed – This is a deed to be executed by a fiduciary such as a trustee, guardian, conservator, or similar person in their appointed capacity.
Terms Common to Deeds:
Grantor – The person who owns the property and executes the deed conveying the property to another person. This can be one or more persons, a corporation, limited liability company (LLC), partnership or other entity.
Grantee – The person who receives title to the property. The grantee can be one or more persons, a corporation, LLC, partnership or other entity.
Consideration – The value given to the grantor by the grantee in exchange for the conveyance. Some states include the exact consideration in the deed and others do not but instead include a statement of consideration as being 10.00 and other good and valuable consideration.
Operative Words of Conveyance – These are state specific and generally are statutory. They show intent to transfer present title. As previously mentioned, examples are “conveys and warrants”, or “convey and quitclaim” or convey and specially warrant”.
Legal Description – The legal definition of the property being conveyed. This is contained in the deed where the grantor obtained title to the property and should be used in the deed where the grantor conveys the property exactly as written in the grantors deed unless not all of the property is being conveyed.
Life Estate – A life estate is where a person owns all the benefits of ownership in the property during their life, or the life of another, with the property going to a remainder person after the death of the life tenant.
Tenants in Common – This is how two or more people (co-tenants) may take title to property who intent their share in the property to be separate from the other on death. On the death of the tenant in common the deceased persons ownership in the property is left to his or her heirs or as specified by Will. Compare to Joint Tenants. If tenant in common ownership is desired the deed usually provides, “to Grantees, A and B, as tenants in common and not as joint tenants”.
Joint Tenants with Rights of Survivorship – This is how two or more persons may take title to property when the parties want the entire ownership to go to the survivor instead of the heirs of the survivor. On death of a joint tenant with rights of survivorship, the entire interest of the deceased co-tenant goes to the surviving co-tenants. Compare to Tenants in Common. In stated without community property, it is common for husband and wife to take title as joint tenants with rights of survivorship. If joint tenant with rights of survivorship ownership is desired, the deed usually provides, “to Grantees, A and B, as joint tenants with rights of survivorship and not as tenants in common”.
Community Property – In community property states, special laws govern how property is owned between husband and wife. There are significant tax benefits and rights associated with this unique type of ownership and the reader should review our article on the topic.
Reservation Clause – This is a provision of a deed where the grantor may reserve some right in the property such as mineral rights.
Exception Clause – This is a clause in a deed were exceptions to title conveyed may be listed. Example, “Less and Except a prior reservation of all oil, gas and mineral rights in the property conveyed.”
Subject to Clause – This is a clause in a deed where property usage rights may be states. Example: “Subject to all rights of way, easements and protective covenants of record”.
Execution and Acknowledgments:
Execution – A deed must be in writing and signed by the grantor(s). Generally, deeds conveying a homestead estate must also be signed by the grantor’s spouse.
Acknowledgments – In addition to the signature of the grantor(s), deeds must be acknowledged to be recorded and acceptable as evidence of ownership without other proof. Each state has special acknowledgment forms.
Name, Address, phone – The names of the grantor and the grantee should appear on the deed. The address and phone numbers are also usually included.
Recording or Filing Place – Generally, deeds should be recorded in the county in which the real estate is located. Although generally a deed does not have to be recorded to be a valid conveyance, there are practical reasons for recording a deed. Deeds usually do not take effect as to creditors and subsequent purchasers without notice until the instrument is recorded. Thus, unrecorded deeds may be void as to all subsequent creditors and subsequent purchasers without notice until they are filed for record. Recording a deed places subsequent purchasers on constructive notice in that subsequent purchasers are deemed to have actual knowledge of any recorded instrument.
Some states are “race-notice” states, which means that the first grantee without notice to record a deed to property will be protected against the interests of other grantees with unrecorded deeds to the same property.
Acceptance and Delivery – Another element of a valid deed is that the deed must be delivered and accepted to be an effective conveyance. Most states assume delivery if the grantee is in possession of the deed. The deed also must be accepted by the grantee. This acceptance does not need to be shown in any formal way, but rather may be by any act, conduct or words showing an intention to accept such as recording the deed.
A title deed is far more than a contract. It is a document that can directly alter property rights and depending on the type of deed, vests rights and obligations between the holder and third parties. Based on the type of deed, whether recorded or not and the chain of title, property can be lost or encumbered in significant ways that are of immediate effect on the possible owners and buyers.
In short, anyone dealing with real property must be conversant with the law of deeds or hire competent experts to advise them as to appropriate holding of title.