What Are the Common Types of Deeds in Real Estate Investing Used?

This is a review of the common types of deeds that are used to convey properties and what the advantages or disadvantages are of each one. Different states may require specific types of deeds if they are a judicial or non-judicial state in terms of their foreclosure proceedings.

Warranty Deed – Sometimes called a General Warranty Deed, this type of deed essentially guarantees that the seller (grantor) is transferring a clear and marketable title to the buyer (grantee). Clear and marketable title means that there are no encumbrances or title defects. This guarantee is not limited to the time the grantor owned the property but extends back to the origin of the property in the public record. The seller can make this claim because previous title policies have insured his interest when he purchased the property.

Limited Warranty Deed – This type of deed is also called a Special Warranty Deed and differs from a Warranty Deed in that the seller (grantor) is essentially guaranteeing only that the grantor has the right to transfer the deed. It limits the type of title transfer to an “insurable title” rather than a clear and marketable title.

The difference is that an insurable title can contain a title defect or a break in the chain of title usually caused by a foreclosure action or tax deed sale as examples. The buyer can obtain title insurance but the title may not be clear and marketable. The result is that a bank may not lend to a buyer of this property in the future. There are cures for this break in the chain of title, usually by a quiet title action in the court system.

Quitclaim Deed – This type of deed specifically transfers the title to the property with the grantor “quitting” any liability that is attached to the property at the time of transfer. These liabilities can be code and mechanic liens or code violations and judgments against the grantor. Mortgages will remain on the property and will still be the responsibility of the grantor after the transfer to the grantee.

Often children of elderly parents will have their parents sign a quitclaim deed and record it after their parents’ death. While the clerk of the court will record the deed and the children’s names will appear in the public record, their parents’ estate will have to be probated to transfer the title to a buyer later.

The problem occurs when a closing agent does a title search on the property and finds the quitclaim deed without a judge’s adjudication in the public record showing the closure of the estate by probate. If a trust is the owner of the property, the property transfer bypasses probate but not the liability for income or estate taxes if they apply. In one county that is close to where I live, fully 80% of quitclaim deeds in the public record are fraudulent. Most are identify theft for attempted refinance or resale of the properties. Now when any quitclaim deeds are recorded, the former owner on title is contacted by the clerk of the court to confirm the transfer.

Certificate of Deed – This type of deed is not signed by the former property owner as the property is transferred to the new owner by a court action. It is issued by the clerk of the court after a foreclosure sale or a tax deed sale. It is essentially a “temporary” deed that will have to go through a quiet title action to be transferred to another buyer at a later date. This court action is required if the new buyer wants an insurable or marketable title if he plans on ever selling the property in the future.

Deed to Trustee – This type of deed is essentially a Warranty Deed from a seller to a trustee of a land trust or other financial planning trust such as a revocable living trust. The trustee is empowered to do what is in the best interest of the beneficiaries of the trust regarding the property itself – including the maintenance, repairs and sale of the property. When the property is sold, the trustee will sign as the grantor but the proceeds of the sale will be issued to the beneficiaries or held in the trust for their benefit.

In summary, you may see these basic types of deed transfers in your investing career. It is important that you read the deed carefully to determine what the grantor is transferring to you – liability or a clear and marketable title or something in between. If you are a buyer and getting a quitclaim deed, pay to have a closing agent issue you a title policy to insure you aren’t getting a whole load of problems you never expected!

Source by Dave Dinkel

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