One of the documents central to the purchase of real estate is the deed, the legal instrument by which title or ownership is transferred. You don’t necessarily need to know all the legal fine points, but it’s important to have a basic understanding of what a deed does. Always consult an attorney with legal questions.
Title and deed. It is fairly common for people to confuse title and deed. Title to a property means ownership. Whoever owns the property has title to it. The deed, on the other hand, is the document by which one party transfers title to another.
Types of deeds. The differences between the deeds listed below are the degree of warranties or protections provided by the grantor (seller) to the grantee (buyer).
- Quitclaim deeds transfer the ownership rights without making any guarantees that there aren’t other claims on the property. It is simply a transfer of one’s ownership interest in a property and may be used in situations such as divorce settlements.
- General warranty deeds provide the greatest protection and warranties for the grantee. This type of deed transfers title and makes assurances that the grantor has good title to the property, and that it is free from liens and other claims of ownership. It includes a “warranty forever” which compensates the grantee for legal assistance if these assertions turn out to be untrue.
- A deed of trust means that a trustee holds the title as security for a loan on the property until the buyer pays off that mortgage. Once the mortgage is paid in full and the lien is released, the trustee transfers full title of the property to the buyer via a reconveyance deed.
- A contract for deed, also known as a land or installment contract, isn’t really a deed. It is a contract in which the seller retains title then delivers a deed when the buyer pays off the mortgage. This would happen when a seller is financing the buyer for the property purchase.
Forms of ownership. Deeds list the owners of property, described as tenants, and the amount of interest each holds. “Tenancy in common” means multiple owners who may or may not hold equal amounts of interest. Each tenant can designate who their portion transfers to upon their death. With “joint tenancy” each tenant owns an equal share, and upon the death of one, their share goes to the remaining tenants. “Tenancy by the entirety” is a special form of ownership that is preferred for married couples in some states. Each tenant owns an equal, undivided interest regardless of the amount of financial commitment when the property was purchased. Automatic survivorship exists so if one spouse dies, the other partner takes 100% ownership and cannot be overridden by a will.
The process. Deeds are universally required across all states for the legal transfer of real estate. The essential elements of a deed include: a competent grantor (18 years of age or older), name of grantee receiving the property, a granting clause or words of conveyance, a legal description of the property, and signature of all owners. Title will pass only when the deed is delivered and accepted by the grantee. Although title is conveyed at settlement, the deed must be notarized and recorded with the county Register of Deeds before the property is considered closed.