There’s a lot of talk in the investor world about “Getting the deed.” But when you’re purchasing a property or transferring ownership, how does all that title speak come into how you structure the deal?
Disclaimer: I’m in Arizona, so some of these specifics may be a little different in your neck of the woods. But, here’s some more in-depth information about those prized pieces of paperwork and how they’re used.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
Two Main Types of Deed
In general, there’s a couple different types of Deeds: Patent Deeds and Conveying Deeds.
Patent deeds aren’t something that we’re dealing with most of the time, as they are used when transferring real property from the state or federal government to individuals.
Now, conveying deeds are the ones we’re more used to hearing about and using, and include Bargain & Sale, Special Warranty, and General Warranty Deeds.
Can I get a Bargain on this?
A Bargain and Sale deed is a fancy way of saying the government or private person is selling a property with no warranties and usually under market value, like in the case of a foreclosure. This type of deed is of lower quality than other deeds, because it doesn’t come with all the same protections for the Buyer as a Warranty Deed would, and limits the liability of the grantor (the person or entity GRANTING the deed to the buyer).
Sheriff’s Deeds – In the case of a foreclosure where there was failure to make payments
Treasurer’s Deeds– In the case of foreclosure with failure to pay property taxes
Executor’s Deeds – In the case of probate to settle the estate
Trustee’s Deeds – In the case where property is placed with a Trustee to offload, usually in a Deed of Trust foreclosure or bankruptcy
Does this Warrant a Better Deal?
A General Warranty Deed is preferable to the Bargain & Sale type deed, as the person granting it (“Grantor”) fully guarantees clear title. This type of deed does NOT cover the physical condition of the property. The General Warranty Deed provides the most protections to the buyer of the property – in essence, the seller is promising that there are no liens, judgements or encumbrances on the property not only while they owned it, but since the property was built.
In a Special Warranty Deed, the Grantor takes responsibility for any encumbrances and/or defects that may have come up during the time they owned the property. These types of deeds are used mostly in Land Contract transactions or in the case where a Trustee conveys property.
Other Types of Deeds
These are other more specialized Deeds that we as investors will see and utilize throughout our deal making adventures. They include:
Correction Deed – just like it sounds, a deed that is used to correct or supplement the original deed and is re-recorded.
Disclaimer Deed – This is mostly used in situations where you have a husband and wife and one spouse releases their interest in a property. If you’re buying and selling 50 houses a year, your significant other probably doesn’t want to tie themselves to every transaction. So in those cases, you can have the title or escrow company have a Disclaimer Deed prepared at the time of closing. These types of deeds contain no covenants or warranties and prevents the person signing off on the property any rights to future claims.
Quit Claim Deed – These are often used to quickly correct defects on title or release minor interest in real estate. They’re used for example in quiet title suits and may be brought into play to erase easements, release interests and clear title, which is really helpful if you’re trying to sell the property and something erroneous has popped up. These types of deeds do not have any covenants or warranties, and don’t provide much protection for Grantees (the person who is receiving the Deed).
If in doubt, it’s always good to call your local Title/Escrow company or Attorney – whoever is performing the closing. If you let them know what you’re trying to accomplish, they can go over your options and set your transaction up properly.
What type of conveyance do you use most in your business model? Do you get creative with your conveyance strategies?
Photo: Meredith Harris