All real estate transactions require a deed, which is a legally binding document that conveys the ownership of a property from one party (the grantor) to another (the grantee).
In addition to the transfer of ownership, a property deed also includes warranties and covenants that protect the buyer should anything come into question regarding the property. Once the document is signed by all parties, those warranties and covenants will hold up in a court of law -- which is why a real estate attorney should be consulted before any purchase or sale of property takes place.
Types of real estate deeds
All property deeds serve to transfer ownership from the grantor to the grantee. However, there are differences in how the buyer is protected and the amount of liability a seller has should the property have any encumbrances, such as liens or ownership claims from other parties.
As there are many types of real estate transactions, there are many types of deeds. For easier reference, let's look at them by type.
General warranty deed
This property deed is also known as a full covenant and warranty deed. Out of all the deeds, this one offers the most protection for the buyer. This document provides a guarantee that the grantor not only owns the property but also has the right to sell it. It also proves that the real property does not have any lien, claim, or other encumbrance against it.
This real estate deed has various covenant deed subtypes:
- Covenant of seisin. "Seisin" is a word that means the legal recognition of someone's ownership of real estate. This deed offers the guarantee that the grantor is the property owner and has the legal right to sell/transfer ownership.
- Covenant of quiet enjoyment. The grantor promises that no other party can lay claim to the property. If someone attempts to do so and the title they have is deemed superior to the one that was part of the sale, then the grantor is at fault and will owe damages to the buyer.
- Covenant of warranty forever. This guarantees the property title will always be sound. Should there be any issues now or in the future, it must be taken care of for the grantee at the expense of the grantor.
- Covenant against encumbrances. This deed ensures that there are no encumbrances on the property. Again, encumbrances include liens, easements, or any other claims against the property that will get in the way of an easy transfer to the new owner.
- Covenant of further assurance. This deed states that should any problems occur with the title, the grantor guarantees that they will procure the documents needed to rectify the matter.
Special warranty deed
Despite the promising name, this is actually a limited warranty deed that only offers the grantee two guarantees:
- That the grantor is in possession of the title.
- That nothing has compromised the title; if it has been compromised, the grantor will take the steps to remedy it.
Due to its limitations, a special warranty deed may be used in transactions where a third party is involved, such as with an executor of an estate overseeing a property that's part of a trust.
Bargain and sale deed
This type of deed is typically used for properties in foreclosures or tax sales. There are no guarantees that the property or land in question is without encumbrances or defects. The deed merely states that the grantor -- the bank or the tax authority -- is in possession of the title. Because the grantor has not lived at the property, there can be no guarantee that it's free of anything that would bring down its value. Without a warranty, the buyer has no protection.
If this sounds risky, that's because it is. However, in some instances, a warranty can be added to a bargain and sale deed to add some level of protection for the grantee. While it would be more like a special warranty deed, in the case of a foreclosure or tax sale, it's called a bargain and sale deed with covenant against grantor's acts. This is a guarantee that the grantor has not done anything that would result in an encumbrance on the property.
Quitclaim deeds carry no guarantee, nor do they indicate whether the grantor's title is even good. But this type of deed actually does have a purpose, which is to clear a cloud on the title. A "cloud on a title" is a legal term referring to something that could put a title in doubt, such as a lien. This deed merely releases a party's claim on the property or land, such as in a property dispute. However, a quitclaim deed may not be used only in troublesome real estate transactions; it may also be used for the easy transfer of property or land between family members in an easy and amicable real estate transaction.
Trust and reconveyance deeds
There are three types of trust and conveyance deeds:
- A deed of trust (sometimes called deed in trust).
- A reconveyance deed.
- A trustee's deed.
A deed of trust transfers property from a trustor to a trustee in order to secure a debt with a lender (the beneficiary). This deed is used in certain states instead of a mortgage. The trustee borrows money from the lender, and so the property is transferred to a third-party trustee, who acts as a fiduciary until the loan is paid. When the debt is repaid, a reconveyance deed transfers the title back to the original party.
A trustee's deed transfers a property title to another party, but not the trustor; rather, the beneficiary usually gets the title as part of this deed. This deed is often used when the grantee is not yet of legal age to receive the property title.
These are deeds that come at the request of the court during a legal proceeding, such as the division of an estate or the seizure of a property by a bank. In the former situation, an executor's deed would be issued. In the latter, a sheriff's deed is in order. As courts and laws vary by state, court-ordered deeds will also be different in each jurisdiction.
The bottom line
Property deeds are an important part of a real estate transaction because they transfer real estate from grantor to grantee and also indicate the guarantees, if any, that are in place to protect the buyer. As these are legal documents that can be upheld in court, it is vital to have a real estate lawyer be involved whenever real estate is bought or sold.
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