Liens, Deeds And The Real Estate Investor - Part 2 DEEDS
A deed is a document by which the interests to real property are
conveyed. Although interests can be conveyed in other ways the deed is by far
the most common method.
A deed is valid without being recorded, but you must record a deed
to give "effective notice" to the world that there has been a transfer of title.
In some counties a tax is levied on title transfers and tax stamps are affixed
to the deed when it is recorded.
A deed does convey title to real property and it can do much more.
It can contain guarantees by the grantor concerning the title. The number and
extent of such guarantees determine the quality of the deed.
Recording the deed
A deed is recorded when it is delivered to the County Clerk or
Recorder for entry into the public record. It is listed in a public record book
or computer file. Most counties require the deed to be acknowledged by a notary
public to avoid fraud. It is not required that the deed be recorded to be valid,
but there are very few situations where it should not be recorded. Recording is
notice to the world and protects everyone's legal rights. This notice can be
very important to subsequent buyers, mortgagors, lien holders and others. The
first lien holder to record is usually first in priority. If you did not
immediately record your deed someone might record a lien before your deed was
recorded. That could be big trouble.
Once a deed has been recorded, it cannot be corrected. However a
correction deed can be executed, acknowledged and recorded to replace it.
Most counties place a documentary stamp tax on instruments conveying
real estate for a valuable consideration. The tax is levied by the sale of
stamps that are affixed to the deed at the time of recording. Only the amount of
consideration that exceeds existing liens or encumbrances is taxed. The rate of
tax varies from county to county. Here’s an example using a tax rate of 50-cents
on each $500 of value or fraction there of. You buy a property with a sale price
of $150,000. You assume an existing loan in the amount of $100,000. When you
record the deed you would have to pay for tax stamps on the $50,000 that
exceeded the existing loan.
50,000 divided by 500 = 100
100 X .50 = $50.00 tax stamps
Requirements
Generally there is no one required form that a deed must adhere to,
but it must contain certain elements to be valid. Most states have introduced
optional forms.
The usual requirements of a deed relate to the parties, words of
conveyance, the grantor’s signature, acknowledgment, delivery and acceptance and
property description.
1. Parties. The two parties are the grantor and the grantee.
a. Grantor
Competence. The grantor must be of legal age and mentally able to act for
himself or another.
Owner. He must own the interest that he conveys.
Clearly Named. The grantor must be clearly named. If he acquired title under
a different name both names should be stated
All owners. All owners must execute (sign) the deed; otherwise not all
interests are transferred.
b. Grantee
The Grantee must be alive at the time of conveyance and some states require
his marital status to be stated. In community property states and homestead
states both spouses must sign.
2. Word of Conveyance. Although many different words can be used to convey title
(grant, bargain, convey) the statement must be clear and concise.
3. Signature. The grantor or grantors must sign the deed. If the property owner
is a partnership the authorized partner must sign. If the grantor is a
corporation its president must sign the deed. In some states the president’s
signature must be attested to by the corporate secretary and the corporate seal
affixed.
4. Acknowledgment. Acknowledgment is a device that gives clear evidence that a
deed is properly executed. This simply means that the document is signed in
front of a notary. Executed means the deed is signed and acknowledgment means
the deed is notarized.
5. Delivery and Acceptance. The deed must be delivered by the grantor and
accepted by the grantee.
a. Delivery occurs when the grantor voluntarily transfers the deed to the
grantee or the escrow agent. An escrow agent is a third party who holds the deed
until certain conditions are met, usually payment of the balance of the purchase
price. The following preclude or do not constitute delivery:
Force or duress,
Fraud,
The grantor merely hands the deed to the grantee for examination, or
4. The grantor executes the deed, but retains possession of it with instructions
to deliver it upon his death. However, delivery to a third party with these
instructions does constitute delivery.
b. Acceptance occurs when the grantee takes possession of the deed
voluntarily and unconditionally. Acceptance is implied if the grantee:
Records the deed,
Takes possession of the property,
Mortgages the property,
Gives consideration, or
Reconveys the property.
6. Description. The realty to be conveyed must be uniquely described in the
deed. It is equally important to describe any interests and realty that are not
being conveyed – the limitations on the conveyance.
a. Limitations. Limitations (if any) to the conveyance are listed
after the property description. These limitations are called exceptions,
reservations, restrictions and existing encumbrances.
Exceptions. The grantor may wish to except some of the realty from
conveyance. The excepted realty (such as several acres) must be described
as carefully as the conveyed realty.
Reservations. The grantor may wish to reserve some rights for himself.
These rights may be an easement, mineral rights, life estates, etc. Both
exceptions and reservations may be kept for the grantor, but not for a
third party.
Restrictions. Restrictions can be written in the deed as restrictive
covenants or listed in a plat (map) recorded with the county recorder or
clerk.
Encumbrances. The deed may also list existing encumbrances such as
mortgages, taxes, etc. The grantee may take title subject to these
encumbrances, but this does not obligate the grantee to satisfy them
unless expressly stated.
b. Property Description. The land is usually described in one of three ways: lot
and block number, metes and bounds, and government survey.
1. Lot and block number is the description most small real estate
investors will encounter when buying single family homes. Subdivisions are
divided into lot and block numbers and a map of the subdivision is filed with
the county clerk and recorder.
For example, the description in a deed might read:
Lot 8 Block 12 Desert Heights
a subdivision of the City of Tombstone
The exact size of the lot can be obtained from a subdivision map filed in the
office of the county clerk. Street name and numbers are not an adequate
description of property and should not appear on a deed.
TYPES
A deed conveys title to real property, but it can do more than that.
It can also include up to five covenants or guarantees concerning the title. The
best deed would include all five covenants and the worst would contain none of
them. The five possible guarantees by the grantor are:
o Grantor is owner. The grantor guarantees that she owns the fee simple
estate at the time of delivery and has the right to convey it. This is a
personal covenant, so it does not run with the land. It is a personal covenant
because the grantor makes this guarantee for himself only, not for previous
grantors.
o No earlier claimants (covenant of quiet enjoyment). This covenant
guarantees that the grantee cannot be evicted by anyone’s asserting a title
superior to the one received. The grantee is protected from constructive
eviction as well as actual eviction. Constructive eviction would occur if the
grantee’s right of possession is disturbed.
o No hidden encumbrances (covenant against encumbrances). This covenant
guarantees that the only encumbrances against the property are those explicitly
included in the deed or explicitly excluded. This is a personal covenant.
o Title will be corrected (covenant of further assurances). The grantor
promises he will obtain, pay for and convey any interest required to correct the
title as promised. For example, the grantor might promise to obtain a
satisfaction of a mortgage or a quitclaim deed releasing a dower interest. A
dower is a partial interest that someone may have inherited.
o Defend against prior claimants (covenant of warranty of title). The
grantor promises to defend the title against all rightful adverse claims and to
pay the cost of such defense. Generally this covenant is breached only when the
grantee is evicted or is refused possession. This covenant runs with the land.
When a covenant is breached the grantee has legal recourse. If he is evicted by
the holder of a superior title he can recover damages equal to the value of the
realty when conveyed plus interest and eviction costs. Other damages may also be
awarded, such as the value of improvements made, the increased value of the
property, costs, etc.
Deeds are classified according to their promises. There are three types:
Warranty Deed. A warranty deed is a deed that contains warranties or
guarantees of title by the grantor. If the grantor promises all five
covenants, the deed is called a full covenant and warranty deed. Clearly
this is the best of all deeds. Of course a grantor may be hesitant to convey
such a deed since the title may have defects unknown to him. A special
warranty deed is a warranty deed that promises protection for defects
occurring only after the grantor received title. Because of this "owner
limitation," the special warranty deed does not run with the land.
Bargain and Sale Deed. This conveys the ownership possessed by the grantor.
It contains few, if any, covenants. It may contain a warranty against the
grantor’s acts. (If this covenant is included it becomes a special warranty
deed.) This is a personal covenant and does not run with the land. The
operative words are: "The said party of the first part covenants that he has
not done or suffered anything whereby the premises have been encumbered in
any way whatsoever."
Quitclaim Deed. This deed contains no covenants and it doesn’t necessarily
convey title. It does convey whatever rights the grantor possesses. This may
be nothing, a partial interest, or a good title. A quitclaim deed will not
convey the after acquired title of the grantor. The words of conveyance are
not those of a warranty deed, but words such as remise, release, and
quitclaim.
The quitclaim deed is often used for special purposes and it is often signed by
other than the owner:
To convey real property as a gift. In this case the deed states that the
property is conveyed "for consideration of the love and affection…."
To convey property after death. The deed is called an executor’s deed if a
will exists and an administrator’s deed if not.
To foreclose (referee’s deed in foreclosure).
To pay creditors (deed by assignee for the benefit of creditors). If an
owner becomes insolvent he may choose to sell his assets and pay his
creditors rather than file for bankruptcy. A trustee is appointed to sell
the assets and apply creditors according to an agreement.
To partition property held by tenants in common (referee’s deed in
partition).
To convey a minor’s interest (guardian’s deed).
To convey interest of the mentally handicapped (committee’s deed).
To convey land to a municipality (cessation or dedication deed).
To release an interest (deed of release). The quitclaim deed is often used
to release interests such as dower, homestead or reminder interests in life
estates.
To merge interests (deed of surrender). For example, a life estate might
merge with the remainder or reversioner interest.
To correct an error in a deed (correction deed or deed of confirmation). If
an error is detected the buyer will request the seller to issue a correction
deed. If he fails to do so a court order can be obtained to correct the
error.
To create a life estate, tenancy in common, joint tenancy, and estate by the
entirety.
To supersede a deed in which title is confusing and not well understood by
the parties.
In your transactions you will usually rely on the escrow officer or real estate
attorney to watch over possible deed problems. You are insulated from the
expense of most problems by title insurance.
CONCLUSION
Now you have an understanding of two important areas of real estate
investing - liens and deeds. The vocabulary of this branch of the law should not
be foreign to you. If you have an understanding of just what liens and deeds
really mean you can make better investing decisions. This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
