If you’re buying or selling real estate, it’s important to understand the difference between a home title and a property deed. A title proves legal ownership of a property, while a deed is a legal document that transfers the title to a new owner.
While both legal concepts are closely related, they’re distinct. It’s important you understand the differences between titles and deeds to avoid unforeseen ownership problems.
What is a Deed?
A deed is used to transfer property from the seller, also called the grantor, to the buyer, or grantee. All property deeds must contain the following elements to be considered legal, valid, and enforceable:
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- Language stating the grantor can legally transfer the property
- Language stating the grantee can legally receive the property
- An accurate written description of the property
- The signatures of both the grantor and grantee
The three main types of deeds related to property conveyance (transfer) are general warranty deeds, special warranty deeds, quitclaim deeds.
General Warranty Deed
A general warranty deed provides the most protection to grantees during a sale.
Each state has its own rules and regulations regarding how these deeds function, and it’s important to research the laws of your individual state before signing.
In a general warranty deed, the grantor is required to make legally binding guarantees called covenants regarding the quality of the real estate title.
Because of these guarantees, warranty deeds are sometimes referred to as “full covenant and warranty deeds.”
There are four covenants that every general warranty should include:
- Covenant of Seisin: The grantor promises they have the legal right to convey, or transfer, the property.
- Covenant of Further Assurance: The grantor promises to provide all paperwork and documents necessary to validate the title.
- Covenant of Quiet Enjoyment: The grantor promises the grantee won’t be disturbed or removed from the home if a title defect is discovered.
- Covenant Against Encumbrances: The grantor promises that there are no liens or encumbrances on the property.
Special Warranty Deed
A special warranty deed limits the title defect protection that the grantee receives. A grantor uses a special warranty deed to promise that no title defects occurred during their time holding the title. This means that the grantee is unprotected against title problems that arose before the period of the grantor’s ownership.
Quitclaim Deed
A quitclaim deed, sometimes called a non-warranty deed, conveys the grantor’s property title to the grantee without any warranties or promises. As a result, it provides the least amount of protection to the grantee.
If the grantor has a clear title, then a quitclaim deed conveys the property as effectively as a general warranty deed.
However, if the grantor conveys a title with defects or problems, the grantee has no protection or the ability to take legal action against the grantor.
This is why quitclaim deeds are most frequently used in two situations:
- by grantors who suspect title defects and wish to limit their liability after the property sale, or
- in official transactions like court and estate proceedings, mortgage defaults, and sheriff’s sales.
It’s important to note the tax implications of using a quitclaim deed as well. Upon transferring ownership, the grantee is obligated to pay property taxes on the real estate going forward.
Additionally, some states may impose a transfer tax based on a percentage of the amount paid to acquire the property (“consideration”).
Keep in mind there are exemptions for the various taxes associated with quitclaim deeds, and you should consult a tax professional if you have any questions.
What is a Title?
A title proves legal ownership of a real asset like a home or car. Unlike a deed or a vehicle title, a property title is conceptual and isn’t a physical document, although it’s conveyed in the deed. A property title includes a series of benefits, known as a “bundle of rights”, and is often featured in a properly drafted deed.
As a homeowner with a valid deed, your title’s bundle of rights includes:
- The right of control: Your ability to use the property in any lawful manner.
- The right of disposition: Your right to permanently or temporarily transfer ownership of the property as long there are no loans, liens, or other encumbrances.
- The right of enjoyment: Your right to enjoy the property in any lawful manner. (This is distinct from the right of control.)
- The right of exclusion: Your right to choose who is allowed on the property.
- The right of possession: Your legal right to claim ownership of the property.
A property title can be held by a single individual or multiple individuals/entities, such as a married couple or a corporation.
To transfer a property title from the grantor to the grantee, the title must be approved as a clear title. A clear title must be free of any undisputed claims of ownership. This means that the title doesn’t have debts, liens, back taxes, or other creditor claims.
To protect yourself against these risks, you should purchase title insurance and perform a title search if you’re considering buying a property.
Title Insurance
Title insurance is designed to protect grantees from any hidden or unknown title defects. It’s purchased by the grantee for a one-time cost prior to the property sale.
Unlike other types of insurance policies that protect against potential future events, title insurance offers protection against past events that blemished the real estate title.
There are many potential issues that can make a title “dirty,” including the following:
- Ownership or disputed ownership by another party
- Judgments against the property, like lawsuits or mechanic’s liens
- Forgery and fraud
- Unresolved building code violations
- Back taxes
In addition to the standard form of title insurance purchased by the buyer, an owner’s policy can be used for extra coverage.
An owner’s title insurance policy is purchased by the seller of the property as another layer of protection against potential title problems, or in the event, someone attempts to sue the property owner stating they have a claim to ownership.
Title Search
Title insurance covers the cost of a deep title search performed by a real estate attorney or title company. During a title search, experts carefully examine all public records and legal documents to identify any potential title defects, claims, and disputes.
If a title search identifies any problems, the grantor is responsible for resolving the issues before the sale occurs.
Understanding the Difference Between a Title and Deed
In essence, a title is a document that proves legal ownership of a property and is transferred from one owner to the next using a deed.
A property title must be carefully examined and protected because any defect or unresolved problem can render it invalid. It’s also important to select the right type of property deed and draft it carefully to ensure legal transfer of ownership from the grantor to the grantee.
As long as these legal documents are executed properly, buyers can enjoy their new property without any fear of future complications.
