A deed is a document that is written and conveys title to real property. An example of a deed that in exchange for the agreed upon terms of a real property contract, including the purchase price and any other conditions of the terms, at the closing of such a contract, the seller delivers a deed to the buyer for the contracted real property.
Traditionally and under common law, to be valid and enforceable, a deed must fulfill several requirements:
- It must state on its face it is a deed, using wording like “This Deed…” or “executed as a deed”.
- It must indicate that the instrument itself conveys some privilege or thing to someone. This is indicated by using the word hereby or the phrase by these presents in the clause indicating the gift.
- The grantor must have the legal ability to grant the thing or privilege.
- The grantee must have the legal capacity to receive it.
- It must be executed by the grantor in presence of the prescribed number of witnesses, known as instrumentary witnesses (this is known as being in solemn form) or be notarized. A seal must be affixed to it. Originally, affixing seals made persons parties to the deed and signatures were optional, but most jurisdictions made seals outdated, and now the grantor and either witnesses signatures or notarization are primary.
- It must be delivered to (delivery) and accepted by the grantee (acceptance).
- It should be properly acknowledged before a competent officer, most often a notary public.
There are many types of deeds. As an investor, you should familiarize yourself with these types of deeds. Here are some of the most common types of deeds.
Deed of trust
In some jurisdictions, a deed of trust is used as an alternative to a mortgage. A trust deed is not used to transfer property directly. It is commonly used in some states, California, for example, to transfer title to land to a “trustee”, usually a trust or title company, which holds the title as security (“in escrow“) for a loan. When the loan is paid off, title is transferred to the borrower by recording a release of the obligation, and the trustee’s contingent ownership is extinguished. Otherwise, upon default, the trustee will liquidate the property with a new deed and offset the lender’s loss with the proceeds.
A quitclaim deed is a term used to describe a document by which a person (the “grantor”) disclaims any interest the grantor may have in a piece of real property and passes that claim to another person (the grantee). By contrast, the deeds normally used for real estate sales (called grant deeds or warranty deeds, depending on the jurisdiction) contain guarantees from the grantor to the grantee that the title is clear. The exact nature of the warranties varies from jurisdiction to jurisdiction. Quitclaim deeds are sometimes used for transfers between family members, gifts, placing personal property into a business entity, to eliminate clouds on title, or in other special or unusual circumstances.
The most common use for a quitclaim deed is a divorce in which one party is granting the other full rights to, and eliminating any interest in, a property in which both parties held an interest. If a husband and wife own a home and divorce, and the wife acquires the home in the decree, the husband would enact a quitclaim deed to eliminate interest in the property.
Quitclaim deeds are also typically provided in cases of tax deed sales where property is auctioned off to pay outstanding tax debt. The auctioning body is usually a local government, which claims no interest in the property whatsoever, but is selling it only to recover the back taxes.
Deed of Reconveyance or Deed of Release
This is a document in the form of a deed, in which one who has limited rights to a piece of real estate abandons those rights back to the owner of the real estate, This often takes the form of a quitclaim deed. An example would be Joe holds a mortgage on Sam’s land and wishes to sell only part of the land. In return for Sam paying down the mortgage in an agreed upon amount, Joe gives Sam a deed of release or reconveyance to the part he sold. This gives Sam clear title to that portion of the land.
This is a clause in a deed that limits the use of the land. This can also be a covenant of restriction.
Bargain and sale deed
A third type of deed, known as a bargain and sale deed, implies that the grantor has the right to convey title but makes no warranties against encumbrances. This type of deed is most commonly used by court officials or fiduciaries that hold the property by force of law rather than title, such as properties seized for unpaid taxes and sold at sheriff’s sale, or an executor.
In the transfer of real estate, a deed conveys ownership from the old owner (the grantor) to the new owner (the grantee), and can include various warranties. The precise name and nature of these warranties differ by jurisdiction. Often, however, the basic differences between them is the degree to which the grantor warrants the title. The grantor may give a general warranty of title against any claims, or the warranty may be limited only to claims which occurred after the grantor obtained the real estate. The latter type of deed is usually known as a special warranty deed. While a general warranty deed was normally used for residential real estate sales and transfers, special warranty deeds are becoming more common and are more commonly used in commercial transactions.
Thank you to Wikipedia for help with some of the definitions and example.