Know This Before Buying Your Next Home: The Good, The Bad, The Deeds
Hopefully at some point in your life, you will become involved with buying or dealing with real estate. Whether for personal interest or as part of your profession, you should get to know what deeds are.
Understading the Deed of Real Estate
What is a deed, you ask? A deed can be an act performed based on good (or bad) motives. However, we’re concerned about real estate version of a deed. In real estate, a deed is a legal instrument that transfer ownership of property interests. Deeds are short documents that contain: a description of the real estate involved, the names of the parties, and the signature of the person(s) transferring the real property.
The most common types of deeds are:
- General Warranty Deeds
- Special Warranty Deeds
- Grant Deeds
- Quitclaim Deeds
- Bargain and Sale Deed
- Trust Deeds
- Court-Order Deeds
Grantor vs. Grantee
To better understand each deed, you will come across the reference names Grantor and Grantee designated to the parties involved with ownership, transfer and legal judgments about interest in a property. In general, the Grantor “gives” something and a Grantee “receives” something. These terms are important to determine if and how a particular document impacts the parties’ interest to the subject real estate.
General Warranty Deeds
A general warranty deed protects the grantee against title defects occurring at any point in time, especially beyond the time the grantor owned the property. The guarantee extends back to the property’s origin. This form of deed is the most protective of the buyer.
Special Warranty Deeds
A special warranty deed protects the grantee only against title defects occurring from the actions or omissions of the grantor. A special warranty deed is usually conveyed with words Grantor remises, releases, alienates and conveys. The grantor does not warrant to defend against title defects that existed before the grantor’s ownership of the real estate. Special warranty deeds are typically used when real estate is sold in a tax sale. Another common use is by temporary holders of real estate, such as trusts, or other fiduciaries, or corporations, who do not use or occupy the land for their own benefit.
A grant deed is different from a general warranty deed or a special warranty deed since a grant deed does not require the grantor to defend title claims. Grant deeds are not available in all states so check with your local market to verify if this deed type is permitted.
A quitclaim deed does not guarantee that the seller holds a title to the real estate. It only transfers whatever ownership interest a grantor has in a particular property with no guarantees about the extent of the grantor’s interest in the subject property. So when a buyer accepts a quitclaim deed, the buyer also accepts the risk that the grantor may not have a valid ownership interest to the property and there may be additional ownership claims to the title. Title insurance companies may not issue title insurance policies if the property was transferred to the buyer via quitclaim deed. When considering a quitclaim deed, it cuts off claims from the prior owners.
Quitclaim deeds are used frequently when there is a possibility for a title defect. Common use for quitclaim deeds that is appropriate include:
- curing a title defect such as a misspelled name on the deed;
- a party potentially acquired title to the property by conflicting possession;
- there is uncertainty about a certain heir of a prior property owner may have a claim to the property;
- when the division of property is necessary in the case of divorcing couples, a spouse signing all his or her rights to a particular real estate over to the other spouse;
- there is probability that another party may have some other type of remaining interest in the property and the current owner or potential buyer of a property wants the other party to abandon their interest. A good example is when a leasehold interest of a former tenant, or an outstanding option to purchase the property.
Bargain and Sale Deeds
A bargain and sale deed has no guarantee that the land being sold is free of encumbrances. The only implication is that the grantor has title, and not one that is necessarily free of defects. The bargain and sale deed is often the deed that is transferred from a foreclosure or tax sale. Since the grantor is usually a bank or a tax authority, did not occupy the land, they would not necessarily know the encumbrances that may have been attached to the land by the previous owner. Therefore, the grantor does not guarantee against any encumbrances. The bargain and sale deed are conveyed with the words that “grantor grants and releases” or “grants, bargains, and sells”.
Property can be transferred through a trust, there are three different types of deeds linked with trusts, depending on the grantor and grantee. The truster (grantor) is the creator of the trust, the beneficiary is the party benefiting from the trust, and the trustee is the fiduciary administering the trust for the trustor.
- Deed of trust – Also known as the trust deed. This is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan between a borrower and lender. The equitable title remains with the borrower.
- Reconveyance deed – This document transfers the property title from the lender (also called the beneficiary) to the borrower (also called the truster). This document is most commonly issued when a mortgage has been paid in full.
- Trustee’s deed – The deed issued by a trustee to the highest bidder at a trustee’s sale. The deed discloses on its face what the opening or minimum bid was at the sale and what the final winning bid actually amounted to.
- Administrator deeds – A document that transfers real estate from an intestate person to his or her heirs. An intestate person is a person who dies without having a will. This deed will transfer title to the decedent’s property to their next of kin.
- Executor deeds – It is similar to an administrator deed. Used to transfer real property from the estate of a deceased person to an heir pursuant to the terms of a will. The executor of an estate is the person appointed in the will to marshal the deceased’s assets, determine what debts and liabilities need to be paid out of estate funds and ultimately distribute the assets to designated heirs or beneficiaries.
- Master deeds – A deed used by a condominium developer for recording a condominium development. It divides a single property into individually owned units.
- Sheriffs deed – A deed that gives ownership rights in property bought at a sheriff’s sale. A sheriff’s sale is a sale conducted by a sheriff upon order of a court after a failure to pay a judgement. Commonly, property that is involved in a mortgage foreclosure is subject to being sold at a sheriff’s sale. So the sheriff’s deed refers to the deed given in foreclosure of a mortgage. Generally, the debtor has the right of redemption of the property until confirmation of sale is signed by the judge and filed by the court.
To ensure that your best interests are protected, we recommend that you seek a professional for advice and assistance, such as a licensed Realtor or an Attorney with experience in real estate.