As you approach closing day for your home purchase, you’re going to hear a lot of discussion about the deed and title of your property. Both are an important part of owning real estate, but it can be hard to distinguish between the two. Here’s what you need to know about the differences between the deed and title in real estate.
What Is a Deed?
A deed is a document that shows a change in ownership has occurred in a sale. It’s “the physical representation of the transfer of ownership,” says Kendall Bonner, a licensed Florida attorney and broker and owner of Re/Max Capital Realty in Lutz, Florida.
The deed will state the names of both the seller and buyer of the property, and must have the signature of at least the seller of the property to confirm the transfer of ownership. Some states include space for both the buyer and seller to sign, while others only require the signature of the seller, Bonner says.
Deeds are filed as a part of public record with the city, county or state, and are often accessible online through a local tax assessor’s office. However, depending on where you live, a deed can still be considered valid without being filed as a part of public record.
What Is Title?
Title, on the other hand, is not a document but the actual right of ownership.
“Title is going to determine who has the power to transfer and/or use the property, and how that property is owned,” Bonner says.
Because title is the ownership of the property itself, homebuyers and lenders can purchase title insurance to protect against claims of ownership by other parties. Robert Treuber, executive vice president of the New York State Land Title Association, explains that challenges to title can come from unpaid property taxes or a mortgage, child support liens, the relative of a deceased owner claiming to have inherited the property or in cases of fraud, among other scenarios. Prior to a real estate closing, the title insurance company will search the property’s history to see if there are unresolved claims of ownership.
What Is the Difference Between Property Title and Deed?
Title, as a concept, and the deed, as a document, coincide as both the right to and physical representation of property ownership.
However, different types of deeds can mean different things regarding title and whether there are known claims to ownership beyond the transaction taking place. Additionally, discrepancies in the history of a home’s title can lead to necessary adjustments in the deed or even postponement of the closing of the deal.
Different Types of Deeds
Depending on the nature of the transaction and the history of the property, the deed showing your home purchase or sale could vary. Here are the most common types of deeds:
— General warranty deed.
— Special warranty deed or grant deed.
— Quitclaim deed.
— Bargain and sale deed.
General warranty deed. A general warranty deed is the most common deed you’ll come across in a standard home sale. “It’s the one that provides the most and best protection to the buyer,” Bonner says. Title companies use this deed in transactions when it can be confirmed that ownership of the property is free and clear of discrepancies, liens or any other issues. It also shows the buyer that the seller is the correct owner with rights to sell the property.
Special warranty deed or grant deed. A special warranty deed, which may also be called a grant deed, is still used with title insurance, but it offers limited guarantee of unencumbered ownership. With a special warranty deed, the title company is able to confirm that the seller did not endure any ownership discrepancies or encounter other ownership issues, but the title company is not able to make the same guarantee prior to the seller’s purchase of the property. Bonner explains that special warranty deeds are often used for new construction properties in a larger development, where the parcel of land hasn’t previously existed on its own, so title guarantee is harder.
Quitclaim deed. A quitclaim deed, which title insurance companies don’t use, is a simple deed often used when an individual transfers ownership of a piece of property to a person she knows. These deeds can be drawn up by an attorney or even by the seller, and they offer no guarantee that the noted seller holds title of the property. For this reason, quitclaim deeds can be a problem, as Bonner notes: “Unfortunately, there is fraud associated with quitclaim deeds.”
Bargain and sale deed. Like a quitclaim deed, a bargain and sale deed does not offer any protections over title of the property. This type of deed is often used in a foreclosure auction or bank sale of a piece of real estate, and the nature of the deal makes it harder (if not impossible) to guarantee that there are no other claims of ownership. If a lien or claim of ownership is revealed following a bargain and sale deed transaction, it’s on the new owner to resolve the issues.
To protect your rightful ownership of the property, title insurance is considered a valuable part of the homebuying process — and when your purchase is financed with a mortgage, it’s often a required step by the lender.
“To minimize the potential for claims, title agents or title insurance companies conduct extensive research prior to writing the policy,” Treuber wrote in an email. “This research includes establishing the legitimate chain of title for 40 years or more, confirming that prior mortgages were satisfied of record and any liens or other burdens on the property … were cleared and pose no claim to the property.”
When a title discrepancy is found, the title insurance company will defend the policy holder in court and possibly pay off the claim. There are two types of title insurance policies, however: the lender’s policy and the owner’s policy. If you only purchase the required lender’s title insurance to be approved for your mortgage, the title insurance will protect your lender in a discrepancy, but not you. A separate policy will better protect you from fraudulent claims to title, preexisting liens or other issues that come up.
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