Title and Deed – What to Know

Certificate of TitleTitle and Deed are two words you’ll only hear when buying and selling a home. While every state has different laws surrounding title and deeds, the basics are consistent from state to state.

This article will walk you through:

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The 4 Types of Deeds

A deed is a written instrument by which an owner of real estate conveys the right, title, or interest in the parcel of real estate. The owner who transfers the title is the grantor, and the party receiving is the grantee.

The most common forms of deeds are:

  1. General Warranty Deed
  2. Special Warranty Deed
  3. Bargain and Sale Deed
  4. Quitclaim Deed

1. General Warranty Deed

The general warranty deed is the deed that provides the greatest protection to the buyer. This is because the seller is legally bound to certain covenants or warranties. There are five basic warranties.

  1. Covenant of seisin - the seller warrants he or she has the right to convey the title to the buyer
  2. Covenant against encumbrances – the seller guarantees the property is free from liens or encumbrances, except those stated in the deed. If this covenant is breached, the buyer may sue the seller for the cost of removing the encumbrances, such as mechanics liens.
  3. Covenant of quiet enjoyment – The seller guarantees the title will be good against third parties who might bring court action to establish superior title to the property. Again if the title is found to be inferior the buyer will have grounds for a lawsuit.
  4. Covenant of further assurance – the seller promises to obtain and deliver anything necessary to make the title good.
  5. Covenant of warranty forever – the seller promises to compensate the grantee for the loss sustained if the title fails

These covenants are not limited to the period of time the previous owner owned the home, they go back to the first sale of the home.

2. Special Warranty Deed

Bank Auctioned HomeA special warranty deed contains two basic warranties:

  1. The seller received the title
  2. The property was not encumbered, during the time the seller held title, except as noted in the deed

Essentially the seller is only taking responsibility for the period of time owned. This is often the deed given to homeowners buying a bank owned property, since the bank normally doesn’t have any idea what the previous owner did to the property. In an event such as this, it is a good idea to consider additional coverage for anything that is not being warrantied by the seller.

3. Bargain and Sale Deed

A bargain and sale deed contains no warranties against any form of encumbrances. It does imply the seller is in possession of and holds title to the property.

This is a common deed in foreclosures and tax sales and offers the buyer little recourse if there is something wrong with the property, such as a mechanics lien.

4. Quitclaim Deed

A quitclaim deed, provides no warranties of any sort and offers the least protection of all the deeds. It generally only conveys whatever interest the seller may have held at the time the deed is delivered.

A quitclaim deed is often used to cure a cloud on the title. For example, if the seller’s name is misspelled on the deed, the seller can file a quitclaim deed to correct the spelling.

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Title vs Deed

In Arizona, we often refer to having the title of something as not only the ownership to that object, but also the documentation of ownership. Here is a clarification on Title and Deeds.

The word Title has two meanings

  1. The right to, or ownership of that piece of property, whether that be a car or a piece of land. In Real Estate is represented by the bundle of rights.
  2. Evidence of ownership is by a deed. Which means Title refers to ownership of the property, not to a printed document

The document by which the ownership transfers title to the real property is the deed.

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4 Ways to Take Title

Signing Title Documents

When purchasing a home with someone else, you’ll have to decide how to take title. There are four ways to take title and each one has an impact on the ownership of the home and how the property passes on in the event of a death or divorce. For a detailed discussion and advice contact your title representative.

The 4 ways to take Title are:

  1. Tenancy in Common
  2. Joint Tenancy
  3. Tenancy by the Entirety
  4. Community Property

1. Tenancy in common

When you take title as Tenancy in Common, each tenant holds undivided fractional interest in the property. A tenant in common may hold any portion of the interest in the property. In other words ownership/interest in the property among two people may be split 30% and 70%.

However the co-owners have unity of possession. Which means they are entitled to possession of the whole property, only the interest is divided.

Because the owners have separate interests, each can sell their interest to a third party without the consent of the other party. However they cannot transfer ownership of the entire property, just their interest. When one co-owner dies, the tenant’s undivided interest passes according to his or her will, not to the remaining party.

2. Joint Tenancy

This version of tenancy has the right of survivorship built into it. With Joint Tenancy, if one party dies the remaining owner(s) (survivor) obtains the interest. In this scenario, the interest in the property will not pass to the heirs.

When purchasing a home with a wife of fiance, make sure you understand who will obtain your interest in the property in the event of death.

3. Tenancy by the Entirety

This form is not recognized in Arizona. Some states allow husbands and wives to use a special form of co-ownership called Tenancy by the Entirety. In this scenario, the couple each have an equal and undivided interested in the property. In order for the interest in the home to be passed on to heirs, both parties in the marriage must sign the deed that will transfer the interest to another party. Essentially acting as one unit.

4. Community Property

With title being held as Community Property, the husband and wife are considered equal parts in marriage and everything obtained after marriage is part of the community property. There is no right of survivorship. Therefore if one individual dies, that individual’s interest in the property is passed on according to the will, if there is no will, the state handles the assets.

It is important to carefully choose how you take title with your partner. Each form of title has different rules for passing interest in the property to another individual. Each form of title also handles passing title differently in the event someone dies. Consult your title company representative for more information understanding the details of each form before determining how to take title.

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Resource Section

Here is a list of websites and documents to assist in further research. This list will be updated periodically, if don’t see what you are looking for on this list, send us an email or leave a comment and we’ll find it for you.

Websites

Related posts:

  1. Encumbrancing with Liens and Easements
  2. The Closing Table – What to Know
  3. Current Workout Programs Accepted Most Banks
  4. Market Value vs Market Price
  5. Yes on 100 – Protect Our Homes

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