It used to be that all you had to do to sell your house was give the buyer a handful of dirt from the property and say a few legal words in front of witnesses to symbolize the transfer. Experienced Realtors in my office talk about the good old days of a one-page contract. How times have changed! Today, you need an entire tree’s-worth of paper, nerves of steel, lawyers and sometimes doctors to complete a real estate transaction. You definitely want to have a deed to ensure transfer of the property.
Property deeds are written documents used to transfer real estate from a seller (grantor) to a buyer (grantee). They include the actual transfer of the property, called the granting clause, a description of the property being transferred, called a habendum clause and, usually, a warranty. Deeds also must be signed by the grantor. It is the warranty, or lack thereof, that defines each type. Different types of property deeds provide different assurances to the grantor and grantee, and are used in different situations.
As many investors are looking for a great deal, they may run into special situations from time to time that create the circumstances for that great deal. Unfortunate situations such as divorces, death in the family, or financial stress can all lead to circumstances where a grantor is willing to part with a property at less than market value. In these instances the deed transferring the property from grantor to grantee may also be special. It’s important for investors to understand the type of deed used when acquiring the property, the implications during ownership, and implications for transfer of the property at disposition.
- General warranty deed: This kind of deed guarantees that the grantor is the owner of the property and has the right to sell it to the grantee. It also guarantees that there are no debts on the property or defects in structures other than those that are recorded in the deed. Lastly, it guarantees that should any unforeseen problems arise with the title, the grantor will reimburse the grantee for any losses. All of these guarantees extend to before the grantor owned the property; the grantor is responsible for title problems that arose before his ownership.
- Special warranty deed: This warranty is extremely similar to the general warranty deed. This deed also includes the warranty that the grantor has the legal right to sell the property. However, it differs in that it only guarantees that there are no debts on the property or defects in structures other than those stated in the deed during the period of the grantor’s ownership. This kind of deed makes no guarantees outside of what the grantor had knowledge of or caused. For example, if the grantor sells a house in which the plumbing was working fine while he owned it, and the plumbing breaks after the sale as a result of a prior defect, the grantor cannot be held responsible. Other warranties can also be included in the deed if so stated.
- Grant deed: This kind of deed implies that the grantor has the right to sell the property, and that the property itself is unencumbered. However, it does not make explicit warranties like the above deeds. This is the most common deed used to transfer property in the United States.
- Quitclaim deed: This kind of deed has no warranty at all. The purpose of a deed of this type is for one party to release any interest that they had in a piece of property. The deed doesn’t warrant that the grantor had any legal right to the property at all. Quitclaim deeds are usually used in divorce cases, in which one party releases any claim to the property. This party may not have any legal interest in the property, but it prevents them from, for example, claiming a right to money from the sale of the property somewhere down the road.
- Deed-in-lieu of foreclosure: When a homeowner misses several payments and defaults on a loan, sometimes they will transfer the deed of the house to the lender in order to avoid foreclosure. This can use any of the above deed types in the transfer. There is no transfer of money because the homeowner owes the lender; the lender sells off the house to recover at least part of what the homeowner owes. The lender also provides the borrower with a form that states the debt is cancelled and another that states that the lender cannot ask for what remains of the debt after the property sale.
** For more detailed information on this topic, you can visit https://www.lawfirms.com/resources/real-estate/deeds-and-trusts/property-deed.htm or https://www.investopedia.com/articles/realestate/12/property-deeds-and-real-property.asp