A deed is a written document that transfers real estate from one owner to another. In the past, people have attached great importance to the actual piece of paper. Now, it is rarely important that the actual deed be retained by the owner. It is important that the deed be recorded with the county recorder. Recording creates a presumption of ownership.
Creditors also record their liens, such as mortgages, as do the holders of other interests, such as easements and long-term leases. Recording puts the public on notice of claimed interests and protects the interests of those who record. For example, a bank can search the title to property and determine whether a loan applicant actually owns the property he or she claims and whether other debts are recorded.
Components of Deeds
Your state may have unique requirements for deeds. In most states, however, a deed must:
Identify the grantor (seller) and grantee (buyer) by name and address.
Contain words of conveyance and identify the type of ownership being conveyed and any restrictions (explained below). Restrictions may be described on the deed itself or in a separate document, attached as an exhibit or identified in the deed, e.g., “subject to the Declaration of Condominium ownership recorded July 10, 2010….”
Contain a legal description or property index number in addition to the property address.
Be signed by the grantor and, in many states, notarized.
Be delivered to and accepted by the grantee while the grantor is alive, although a few states now recognize transfer-on-death deeds.
An interest in realty, called an estate, can take many forms. The most common ownership interest is fee simple, by which all possible ownership rights are conveyed. Fee simple can be absolute, or it can be terminable. A life estate is an example of a terminable estate, in which ownership during the grantee’s life ends upon that person’s death so that any attempt to transfer the property in a will is pointless. While terminable or conditional estates are now rare, it used to be common for deeds to include a condition or a reversionary interest. For example, a deed might state “unless such property is ever used as a tavern, in which case the property shall revert…” For anything other than “fee simple absolute,” consult an attorney.
In a condominium development, the grantee obtains a fee interest in an individual unit and an undivided interest in the underlying land and common elements, such as the lobby. Other types of ownership that should be noted on the deed include:
Joint tenancy, in which each owner has an undivided interest in the property. Joint tenancy includes the right of survivorship. If an owner dies, the other owner(s) automatically own the deceased owner’s share.
Tenancy in common, in which ownership can be unequal and can be transferred or willed to a person other than the co-owner.
Tenancy by the entirety, which is like joint tenancy but only available to married couples. Neither owner may transfer his or her interest without the consent of the other owner.
Ownership in trust, in which the named grantee is a trustee. This is an individual or entity that will hold title for the benefit of another, known as the beneficial owner, who may be unable or unwilling to manage the property, may wish to conceal ownership, or may wish to protect other interests.
Most deeds specifically state that ownership is subject to real estate taxes, zoning restrictions, and recording documents and easements. The grantee is assumed to be “on notice” of those limitations, regardless of whether they are described in the deed. Pay particular attention to conditions, covenants and restrictions (CC&Rs), imposed by the property's former owners, the developer or builder, the neighborhood, or the homeowner association to preserve property values. CC&Rs may dictate the size of structures, materials that may be used, outbuildings, landscaping, and even the paint colors for a house's exterior. CC&Rs can include rules about pets, impose fees for road maintenance or amenities, restrict rentals, and prohibit the use of your home to operate a business.
Types of Deeds
Most residential purchasers should receive a warranty deed. Warranty deeds include a guarantee that the seller is willing to defend the title against any undisclosed third-party claim. In some situations, the grantor may be unwilling or unable to make that warranty and may use a grant deed (also called a special warranty deed) in which the grantor only guarantees that the property has not been sold to anyone else and is not under any liens or restrictions that have not already been disclosed or recorded. Quitclaim deeds make no promises but just transfer any rights the grantor may have. They are most often used in divorces.
There are several types of special purpose deeds that vary from state to state. Consult an attorney to determine what rights these deeds convey. Tax deeds are used by the government to transfer property that has been seized due to non-payment of taxes. A deed-in-lieu of foreclosure may be used by an owner who is in danger of losing his or her home for failure to make mortgage payments and wants to avoid foreclosure. When property is held in trust or is part of an estate, a trustee’s deed or executor’s deed may be used.