This is a review of the common types of deeds used to convey property and what the advantages or disadvantages of each are. Different states may require specific types of deeds if they are a judicial or non-judicial state in terms of their foreclosure proceedings.
Written guarantee – Sometimes called a General Warranty Deed, this type of deed essentially guarantees that the seller (grantor) is transferring clear and negotiable title to the buyer (dealer). Clear, negotiable title means no encumbrances or title defects. This guarantee is not limited to the time that the grantor owned the property, but extends to the origin of the property in the public registry. 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) essentially guarantees only that the grantor has the right to transfer the deed. Limits the type of title transfer to “insurable title” rather than clear, marketable title.
The difference is that an insurable title may 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 may obtain title insurance, but the title may not be clear or marketable. The result is that a bank cannot lend to a buyer of this property in the future. There are cures for this break in the chain of title, usually by quiet title action in the court system.
resignation deed – This type of deed specifically transfers title to the property with the grantor “waiving” any liability that is attached to the property at the time of transfer. These liabilities may be mechanical and code liens or code violations and lawsuits against the grantor. Mortgages will remain on the property and remain the responsibility of the grantor after transfer to the dealer.
Children of elderly parents will often have their parents sign a quitclaim deed and file it after their parents’ death. While the clerk of court will record the deed and the children’s names will appear on the public record, the parents’ estate will need to be probated to transfer 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 on the public record showing the probate closing by probate. If a trust owns the property, the transfer of ownership bypasses probate but not liability for income or estate taxes, if any. In a county that is close to where I live, 80% of quitclaim deeds on the public record are fraudulent. Most are identity thefts from attempts to refinance or resell the properties. Now, when any quitclaim deed is recorded, the clerk of the court contacts the former owner of the title to confirm the transfer.
deed certificate – This type of deed is not signed by the previous owner of the property since the property is transferred to the new owner by a judicial action. It is issued by the clerk of court after a foreclosure sale or 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 brief action is necessary if the new buyer wants an insurable or marketable title if he plans to sell the property in the future.
trustee deed – 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 best for the beneficiaries of the trust with respect to the property itself, including maintaining, repairing, and selling the property. When the property is sold, the trustee will sign as the grantor, but the proceeds of the sale will be given to the beneficiaries or held in trust for their benefit.
In short, you may see these basic types of deed transfers in your investment career. It is important that you read the deed carefully to determine what the grantor is transferring to you: responsibility or a clear and negotiable title or something in between. If you’re a buyer getting a quitclaim deed, pay to have a closing agent write you a title policy to make sure you don’t run into a lot of trouble you never expected.