Before I got my real estate license, I had bought and sold 10 properties. I had never given any thought to the type of deed conveyed. In fact, I didn’t know there were different types of deeds. I just assumed once I bought the property, I owned it free and clear. Lucky for me, my lender has always required me to purchase title insurance in order to secure the mortgage.
The 5 Types of Deed
There are five types of deed: General Warranty Deed, Special Warranty Deed, Quit Claim Deed, Bargain and Sale Deed, and Grant Deed.
The General Warranty Deed offers the most amount of protection to the buyer — the seller is offering a guarantee that there will be no problems with the title, no claims, no liens, no clouds on the title from the time the buyer makes the purchase, all the way back to the time the property was built.
The Special Warranty Deed is less secure, with the seller only guaranteeing that the property is free from liens or clouds on title during the time they owned it. This isn’t a real big deal if the seller has owned the house for a long time, but if the seller has only owned it for a short period of time, they really aren’t offering you much of a guarantee at all. The house I live in was purchased out of foreclosure, and the bank offered me a Special Warranty Deed. I didn’t feel particularly secure because the bank only owned it for four months.
The Quit Claim Deed is used mostly for transactions like divorce, when you wish to separate assets. The person named on the Quit Claim Deed is literally quitting their claim to the property, whatever their claim may be. There is usually no monetary exchange with this type of deed, and it offers little protection.
The Bargain and Sale Deed is used mostly for the sale of court-seized residential property. It conveys title from seller to buyer, but does not guarantee that the seller owns the property free and clear. It is similar to the Quit Claim Deed, except the property is sold rather than transferred.
The Grant Deed is used in residential real estate sales. It conveys the property from seller to buyer, guaranteeing that the seller owns the property and has the right to sell, but does not guarantee that the title may be free from cloud.
The different types of deed you receive at closing should influence what type of deed you convey when you sell the property. Obviously, you want the most protection for your ownership of the property and want your buyer to have confidence in your ability to convey the property free and clear.
All of that may seem like a big deal, but having title insurance sort of wipes all concerns out. Almost any lender is going to make you purchase a title insurance policy, and the title insurance companies make sure there are no clouds on title. So all that information I just gave you pretty much doesn’t matter.
Unless you are paying cash for these properties. And forego title insurance.
Title insurance isn’t necessary in every case. If you know the property’s history, perhaps it isn’t worth your money. But there have been instances where the person selling the property doesn’t have the right to sell, and somehow this slips through the title search. The title company who issued the Title Insurance Policy has obligated themselves to make it right to all parties, so they pay to fix it. While this isn’t a common problem, the more distressed a property is, the more chance there is for an unrecorded lien to show up after closing.
Title insurance prices vary from state to state, but a good estimate is 0.5% of the selling price as the policy cost. When you go to sell the property, your buyer will want a clean title. And if they are getting a mortgage, their lender will require title insurance.
So now that we have the deed explained, let’s look at all the different ways to take title to a property.
4 Ways to Take Title to a Property
Tenancy in Common, Joint Tenancy, Tenancy by the Entirety and Ownership in Severalty are the four ways to take title to a property.
Tenancy in Common allows for multiple owners of a property, each with a percentage of ownership rights to the entire property. The percentage does not have to be equal, but most commonly is. If four people own a property, they typically will have a 25% stake. Their share can be sold, mortgaged or conveyed without the consent of the other owners. Tenancy in Common does not have the right of survivorship, meaning the 25% interest is not automatically conveyed to the other 3 owners upon death.
Joint Tenancy allows for multiple owners of a property, each with an equal percentage of ownership rights to the entire property. One Joint Tenant isn’t allowed to have a larger share of the property than any other. Joint Tenancy is similar to Tenancy in Common, but most importantly has the right of survivorship, which means that the percentage owned by a person who passes is equally divided between all other Joint Tenants. It cannot be willed or sold to someone other than the other Joint Tenants.
Tenancy by the Entirety is like Joint Tenancy, but there can only be two tenants, they must be married, and they cannot sell or convey their share without consent from the other tenant.
Ownership in Severalty is when there is a single person or entity that owns the property. Severalty comes from the idea that the owner is “severed” from other owners.
Knowing the different ways to take title to a property and knowing the different deeds offered can help you make an informed decision on how you want your property handed over to you. It can save you a lot of hassle and even more money to get the title and deed the way you want it the first time you close.
What different deeds and ways of taking title do you have experience with? Any questions?
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