7 Takeaways: What is a Deed?
7 Takeaways: What is a Deed?
Many folks ask what is a deed at some point during the real estate transaction or even during a Real Estate Agents time at real estate school.
Those who are new to the real estate industry and/or are closing a transaction for the first time are often confused by the terms and jargon used in the real estate transaction process. "Deed" and "title" are two terms commonly used in the real estate industry that are often mixed up. However, despite deed and title commonly being used interchangeably, they are two very different concepts and should not be confused, as they refer to different aspects of the transaction process.
What is a Deed?
A property deed is a legal document used when transferring property ownership from the seller to the buyer. It is a physical, official written document typically recorded in a courthouse or assessor's office in most states. The deed is the document that transfers the title, which is explained in further detail below. To make the deed legal, it must be signed by the person selling the property, referred to as the grantor. The term 'grantee' is used to refer to the person taking possession of the property. In addition to being signed by both the grantor and the grantee, a deed must also include a property description.
What is the Title?
Although the term 'title' sounds like a physical document, it is a concept – not a document – that refers to a home's legal ownership. The deed is the physical document used to transfer the title from the seller to the buyer. The title refers to the property's 'bundle of rights,’ which includes the following:
Right of possession:
This indicates that you own the property.
Right of control:
You can use the property in any way you want (as long as you abide by the law).
Right of exclusion:
You have the right to say who can and cannot enter your home.
Right of enjoyment:
You are allowed to host gatherings, play sports, swim in the pool, and enjoy your home in any way you choose – as long as you don’t break the law.
Right of disposition:
You have the right to sell the property.
What is the difference between a deed vs. a title?
Due to the similar roles the deed and title play in the real estate industry, they are often used interchangeably. However, they are two very different legal concepts. A deed is the physical document recorded publicly that transfers the title from the seller to the buyer. The title is a conceptual term indicating that an individual holds the legal rights to a property – it is not a physical document. As a general guide, keep the following in mind when considering the difference between deed and title:
Deed = Document
Title = Concept
What does it mean to have your name on a deed?
Having your name on a deed indicates that you legally own the property. In the event, you own a home with a partner but your name is not on the deed, your partner can legally sell the home and keep the proceeds (unless you have a document specifying a different arrangement). Alternatively, if your partner passes away and your name isn't on the deed, you cannot inherit the property – unless a provision in the will states otherwise. For those reasons, it is important to have your name on the deed when sharing a home with a partner so that you have the right to occupy, sell, or place a mortgage on the property. The deed should not be confused with the sales contract, which refers to the agreement of the property sale.
What are the main types of deeds?
Several categories of deeds are available, offering different title levels. Whatever the level is, deeds help you prove your property ownership. There are two types of deeds: private and official. Official deeds primarily relate to the execution of legal proceedings in court, whereas private deeds involve residential homes and private property. Most property transactions involve private deeds. In addition to private and official deeds, a deed can also be based on title warranties and the deed type. This includes the following types of deeds:
General warranty deed
A general warranty deed is used when a seller makes a guarantee to the buyer that there aren’t any liens or claims against the property. In the event that liens, encumbrances, or claims arise against the property, the seller is responsible for compensating the buyer. With a general warranty deed, buyers will get the utmost protection concerning legal problems. The grantor must provide an official guarantee through legal promises, generally called covenants. The good thing about this type of deed is that the owner gains the property's selling rights under its protection. However, a general warranty deed is not just about safety.
Special warranty deed
Also referred to as a limited warranty deed, a special warranty deed is similar to a general warranty deed in that the former owner guarantees that there aren’t any encumbrances against the property. However, they are only responsible for covering the property for the period that they owned the property. So, if the property has had five different owners, the seller only guarantees there aren’t any encumbrances during the time they owned the property – without any guarantee for the time prior to them owning the property. Special warranty deeds are used in commercial transactions more than residential sales. It is typically advised to choose a general warranty deed over a special warranty deed to ensure legal protection.
Also known as a limited warranty deed, a grant deed only protects the buyer from two specific warranties. The first warranty assures the buyer that the former homeowner has not transferred the property to anyone else. The second assures the new buyer that the house did not have any problems during the time when it was in the former owner’s possession. A grant deed is limited in that it does not protect a homeowner from any other claims that may have arisen against the property.
With this type of deed, the grantee does not guarantee that the grantor actually has an interest in the property. If it turns out that the grantor does not have title to the property, or there are any problems with the title, the buyer cannot take legal action against the seller.
This type of deed, like a special warranty deed, gives the least protection to the grantee. With a quitclaim deed, the seller does not make any promises or warranty related to the title. If there are any problems with the title, the buyer cannot take legal action against the seller and the seller is not held responsible. That means, for the deed to be useful, you would have to provide a fair and affirmative title without any errors. If the title happens to be defective, the buyer cannot take any legal action. Quitclaim deeds are typically only used when transferring property to family members or when adding a spouse to the property title.
Bargain and sale deed
With a bargain and sale deed, when the buyer gets the title, all the liens or any other problems with the property are passed onto the buyer. It is similar to a quitclaim deed in that it holds no guarantee for the buyers. Bargain and sale deed are not commonly used – the only time this type of deed is used is typical during foreclosures, estate sales, and tax sales.
A bargain and sale deed is not as strong as a warranty deed but is typically better than a quitclaim deed. Sometimes a bargain and sale deed will specifically include one or more guarantees, which is known as a bargain and sale deed with covenants, making it similar to a special warranty deed.
How many names can go on a deed?
There is no limit to the number of people who can go on a deed. If you want to include your partner’s name to the deed, you will have to have a new deed if you wish to add your partner's name to the property title to make him/her a co-owner. It is advisable to meet with an attorney to know the risks behind such decisions.
If you and your partner are both included on the deed but only one person is on the mortgage, whoever’s name is on the title is responsible for paying the mortgage. If your name is on the deed but isn’t on the mortgage, you are not legally obligated to make mortgage payments.
What is title insurance?
Title insurance protects you from any problems that may have arisen in your home before you bought it. For example, let’s say the former homeowners had plumbing work completed, but they never paid the plumber. The individual who owns the plumbing company may place a debt against the property, which is typically referred to as a ‘lien.’ Purchasing title insurance ensures that that lien will not impact you as the new homeowner. Most mortgage companies require that the homeowner purchase title insurance as an added form of legal protection. In some cases, private mortgage insurance will need to be purchased as well, though there are ways to get rid of it.
In addition to protecting you against liens, title insurance also protects you against any property loss, damage, defects, or encumbrances in the title to the property. Title insurance is typically paid one time when you close on the home. It differs from car insurance or health insurance in that it protects new homeowners from problems that may have affected the home prior to buying it. Other forms of insurance – such as car insurance or health insurance – protect individuals from problems that may arise in the future.
Here’s how title insurance works:
When you sell or purchase property, a record of the transaction is stored publicly in the county where the property is located. Additional event records are added as well, including levies or liens held against the property.
After purchasing title insurance, the title company searches these public records for possible problems concerning ownership. A title examiner is responsible for verifying ownership and debts on a particular property. In reviewing public records, the title company’s underwriter determines whether or not the property can be transferred to a new buyer. Issues might include filing errors, undisclosed heirs, or forgeries.
To recap, a deed is a physical document required to convey the transfer of the title to the owner. It is used to convey the title and identifies who owns the property. Several types of deeds are available depending on the transaction process and the individuals involved. Understanding the various types of deeds can help you transfer the property to anyone, including family members and partners. Additionally, having a thorough understanding of the various types of deeds will legally protect you from liens, encumbrances, and other problems that may have affected the property in the past so that the former owner’s problems with the home do not become your own.