How to Select Which Deed Best Suits Your Needs

When undertaking the process of transferring interest in a property, it is imperative that one understands exactly what is being conveyed through the deed and any assurances or guarantees therein. A deed memorializes the transfer of property between parties. The recorded deed notifies the public of the transfer and provides guidance when title companies analyze the chain of title to prove ownership. The key elements that all deeds must contain are:

(i) the names of the Grantor (or Seller) and Grantee (or Buyer);

(ii) the statement of consideration—or, in other words, the payment arrangement;

(iii) the legal description of the property;

(iv) the additional conditions and contingencies imposed on the new Grantee; and

(v) the notarized signature of the Grantor with legal capacity to execute the document (the Grantee’s signature is not required).

Without all of the above key items included in the deed, the deed may not be enforceable. In addition to making sure all of the key requirements are included, one must also consider which type of deed to use in the conveyance. Depending on the type of deed, the Grantee may or may not receive certain protections/guarantees in regard to the chain of title and their ownership claim to the property. There are six (6) types of deeds from which one can choose: (i) quitclaim deeds; (ii) special warranty deeds; (iii) general warranty deeds; (iv) deeds of trust; (v) transfer on death deeds; and (vi) gift deeds.

Quitclaim Deeds

In general, it is wise to be wary of a quitclaim deed. Quitclaim deeds offer the least amount of protection in a conveyance. There are no guarantees at all with respect to existing ownership claims or title defects. The only thing that a quitclaim deed does is transfer Grantor’s individual interest to Grantee—thereby allowing the Grantor to “quit” their claim on the property.

This type of deed should not be used when purchasing a home from a Grantor. Quitclaim deeds are typically best used to correct errors on a warranty deed, to make simple additions to or removals from the title, or to gift property without money changing hands. The transfer through a quitclaim deed transfers whatever interest in a property the Grantor possesses and does not offer any guarantees. Therefore, it’s important that an attorney is involved to make sure you’re protected when using these types of deeds. Otherwise, one could find themselves with a property that is subject to liens or prior contractual obligations (ie: mortgages); in the worst case, your claim to your property in the chain of title may be considered invalid.

While quitclaim deeds offer no protection with respect to the chain of title or any other ownership claims to the property, a special warranty deed provides at least some protection to the Grantee.

Special Warranty Deeds

A special warranty deed offers more protection than a quitclaim deed but less than a general warranty deed. It is also sometimes referred to as a limited warranty deed. In this type of deed, the Grantor only guarantees that no title issues exist for the time-period they owned the property. The Grantor is not liable for any title defects that occurred prior to the Grantor taking ownership of the property interest.

This type of deed is most commonly used for commercial property, foreclosures, and in those instances where the Seller does not know the full history of the property. Special warranty deeds do not protect against liens, encumbrances, or any debts from previous owners. Therefore, it is once again important to get an attorney involved to ensure your protection if you are using one of these types of deeds as a buyer. While this deed provides some protection for the Seller, it fails to protect the Buyer from other claims prior to the time the Grantor took possession of the property interest. The best type of deed that would provide guarantees and protection for the Buyer is a general warranty deed.

General Warranty Deeds

General warranty deeds provide the most legal protection for the Grantee when conveying property interest. The Grantor warrants to the Grantee that they have equitable legal title and there are no other claims to the property. In the event there are any title defects and Grantee has a duly executed general warranty deed; the Grantor would be held liable and responsible for resolving the defect.

This type of deed is the most commonly used one when transferring interest in a property – especially when it comes to home sales. In addition to general warranty deeds being commonly used in home sales, deeds of trust are also widely used in this area.

Deeds of Trust

Deeds of trust are used during the home buying process when the prospective home buyer uses a mortgage loan to fund the purchase. Parties to deeds of trust include (i) the lender, (ii) the trustor or new homeowner, and (iii) the trustee which is typically the title company or some other company that is fit to fulfill the duties of the trustee. The trustee is responsible for collecting mortgage payments on behalf of the lender and has the ability to begin the foreclosure process should the lender default on the loan.

Another type of deed a homeowner may be interested in using to convey their interest in the home is a transfer on death deed or a survivorship deed.

Transfer on Death Deeds

A transfer on death deed transfers property or assets to an heir when the Grantor dies. This type of deed transfers interest in the property without going through probate and is often used during estate planning. While one can avoid the probate process through the use of a transfer on death deed, it should be noted that there is a two (2) year period in which the property can be clawed back into probate. When a Grantor of transfer on death deed passes away, the Grantor’s estate creditors have two (2) years from the date of death to present their claim to the property. Thus, for a period of two (2) years, the Grantee will not be able to purchase title insurance on the property nor make any subsequent sale.

Another way a Grantor can transfer property and avoid the probate process is through a duly executed gift deed.

Gift Deeds

Gift deeds are used when transferring money or real property to a recipient without receiving any payment in return. This requires the Grantor to give up their property without any warranties or guarantees. It also gives the Grantor flexibility to cancel the transfer before it’s finalized, while in contract, an irrevocable gift deed is fixed and permanent.

These types of deeds are typically used to give assets to loved ones, charities, and aid in one’s estate planning. Grantors can use gift deeds to transfer property in order to reduce their taxable estate and allow recipients to bypass the probate process. It should be noted that depending on state and federal laws, the transferred property in a gift deed may be subject to gift tax, and it would therefore be prudent to involve legal and tax professionals to assist you with the conveyance.

While purchasing or acquiring real estate and other assets may be exciting and a commendable step in one’s life, it is crucial that you take steps to protect your interests in such an endeavor. Depending on the tool of conveyance, a potential buyer could find themselves in a tricky situation that could incur further unexpected costs to clear their claim on their property. It is wise to acquire legal counsel when conveying or purchasing interest in a property. The attorneys at DRL are ready and available to assist you during this process to make sure that you are adequately protected. Please feel free to reach out and schedule a free consultation with our real estate attorneys to feel secure about your transfer. (281) 829-1555. Doré Rothberg – Houston & Fort Worth Law Firm.