Understanding the difference between a home title and a property deed during the home-buying process is essential.
Most people assume titles and deeds are the same, but they are different.
A title proves legal ownership of real property, while a deed is a legal document that transfers the title from one person (the seller) to someone else (the buyer).
While both legal concepts are closely related, they’re distinct. To avoid unforeseen ownership problems as home buyers and feel more confident you’re the legal owner of your dream home, you must understand the differences.
Title to a property can be a condominium, townhouse, house title, or any other type of real estate.
What is a Deed?
Parties to real estate transactions use a deed to transfer ownership (property and title) and legal rights from the seller (grantor) to the buyer (grantee). The deed can be for a condominium, townhouse, or house.
All property deeds must contain the following elements to be considered legal, valid, and enforceable:
- Language stating the grantor can legally transfer the property
- Language stating the grantee can legally receive the property
- An accurate written legal description of the property
- The signatures of both the grantor and grantee
You must file the deed in the county courthouse, with the clerk, recorder, or register, where the property is located for the deed to be fully binding.
The three main types of deeds related to property conveyance (real estate transfers) are general warranty, special warranty, and 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 essential to research your individual state’s laws before signing.
In a general warranty deed, the grantor makes 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 deed 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 because of a discovered defect.
- Covenant Against Encumbrances: The grantor promises there are no liens or encumbrances against the property.
Special Warranty Deed
A special warranty deed, like a grant deed or bargain and sale deed (for sales following a foreclosure or tax sale), limits the title defect protection the grantee receives.
A grantor uses a special warranty deed, such as a grant deed or bargain and sale deed, to promise that no defects occurred when the grantor owned the property.
This means that the grantee is unprotected against problems that arose before the period of the grantor’s ownership. You’ll typically see special warranty deeds during bank foreclosures of residential property or commercial property transactions.
A quitclaim deed, sometimes called a non-warranty deed, conveys the grantor’s title to the grantee without any warranties or promises.
As a result, it provides the least amount of protection to the grantee and is probably best used between family members.
If the grantor has 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 of a quitclaim deed has no protection or the ability to take legal action against the grantor.
This is why quitclaim deeds are most common in the following situations:
- Between family members such as adding or removing a spouse, or
- By grantors who want to fix defects, or
- In official transactions like court and estate proceedings, mortgage defaults, and sheriff’s sales.
It’s also important to note the tax implications of using a quitclaim deed. Upon transferring ownership, the grantee must pay property taxes on the real estate from that date.
Additionally, some states may impose a transfer tax for quitclaim deeds based on a percentage of the amount paid to acquire the property (“consideration”).
Many states require you to file a deed in the assessor’s office for it to be valid.
What is a Title?
A title is the legal right of ownership of a tangible asset like a home or car. Unlike a deed or a vehicle title, a property title is conceptual and isn’t a physical or legal document.
A title includes a series of benefits, known as a “bundle of rights,” often in a properly drafted deed.
As a homeowner with a valid deed, your bundle of rights includes the following:
- The right of control: Your ability to use the property legally.
- 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 property ownership.
A single individual or multiple individuals/entities, such as a married couple or a corporation, can possess title to a property.
The title must be clear to transfer a property from the grantor to the grantee. A clear title is free of undisputed claims of ownership, which means it doesn’t have debts, liens, back taxes, or other creditor claims.
Many property transfers involve an Affidavit of Title, which is a form grantors use to swear they own title to a piece of real estate.
Title insurance protects grantees from hidden or unknown defects or encumbrances (like liens from bankruptcies, past due child support payments, and unpaid contractor work).
The grantee typically purchases it for a one-time cost before the property sale.
Unlike other insurance policies that protect against future events, title insurance offers protection against past events that blemished the real estate title.
Many potential issues can make a title “cloudy,” 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 insurance the buyer purchases, sellers can buy an owner’s policy for extra coverage.
The property seller purchases an owner’s title insurance policy as another layer of protection against potential problems that appear during a title search or if someone attempts to sue the property owner, stating they have a claim to ownership.
Banks and other lending institutions often require lender’s title insurance on a property before it will allow the closing of a loan and escrow.
Title insurance covers the cost of a deep title search performed by a real estate attorney or title company.
Experts carefully examine all public records and legal documents during this search and create a title abstract based on data collection to identify potential title defects, claims, and disputes.
If a search identifies any problems (cloudy and not clear title), the grantor is responsible for resolving the issues before the sale occurs.
Deed vs. Title: Understanding the Difference
In essence, a title is a right to legal ownership of a property and the deed is the document that transfers the title (and the property) from one owner to the next.
A property title must be carefully examined and protected because any defect or unresolved problem can render it invalid.
It’s also essential to select the correct type of property deed and draft it carefully to ensure the legal transfer of ownership from the grantor to the grantee.
Remember that title is not a document on file in the public record but rather a legal term used to refer to the concept of property ownership.
Buyers can rest easier with their home purchase and enjoy their new property without fearing future complications if all parties understand these terms and execute these legal documents properly.
Find out more about deeds and titles by reviewing our forms and checking out our document builder.