Deeds, In Deed
By Vena Jones-Cox

One of the most common “technical” questions I get from Inner Circle members relates to the many types of deeds that that can be used to transfer title to a property.
Those questions are generally along the lines of, “The bank wants to give me a Limited Warranty Deed; is that OK?” Or “The seller’s lawyer says I can only get a Guardianship Deed, what does that mean?”.
Although there are several dozen common and arcane types of deeds in use throughout the country, they all serve basically the same function: they transfer ownership of a property from one party to another. In order to be valid, every deed must contain 5 things: an indication that the instrument is meant to convey title, a grantor (seller) who has the legal ability to sell the property; a grantee (buyer) who has the legal capacity to purchase it; delivery to and acceptance by the grantee; and (although this varies from state to state), verification of the grantor’s signature in the form of a notary public’s seal, witnesses, or both.
Beyond these basics, though, different deeds are used because they contain different promises and warranties from the seller. This might be important in a particular transaction, and it might not…but unless you understand what you’re getting, it’s impossible to know.
Interestingly, it is not the case that that a seller who receives a particular type of deed then he buys to sell with that same deed. For instance, a bank buying a property at a foreclosure auction will receive a Sheriff’s Deed, but will re-convey using a Limited Warranty Deed. An heir who gets a property via a Survivorship Deed can sell it to you with a General Warranty Deed. And if you buy a property at a tax sale and get a Tax Deed, you can resell that property, if you wish, using a Quit Claim or Warranty Deed.
So let’s look at some of the most common types of deeds you’ll see, and what they mean.
A General Warranty Deed is probably the most commonly used deed in much of the country. In some areas, it is called a Grant Deed. With this type of deed, the grantor (seller) makes certain guarantees to the grantee (buyer). For instance, the seller guarantees that he owns the real estate and has full power to convey it; that the property is free of any liens or encumbrances except those specifically recited in the deed; that no one else has any claims against the title; and that if any of this turns out not to be true, he will “defend the title”—in other words, pay to remove other liens, defects, encumbrances, or claims against the title.
In general, this is the type of deed you want to get when you buy, and in most cases, the seller can convey a general warranty deed to you EVEN IF HE GOT SOME OTHER TYPE OF DEED when he acquired the property. Unfortunately, some sellers simply won’t convey a General Warranty Deed for the simple reason that he (or, more often, IT) doesn’t want to warrant a deed to this level. That’s when you’ll see:
A Limited Warranty Deed (or Special Warranty Deed) gives the grantee (buyer) these guarantees only for the period of time of the grantors ownership. In other words, the seller only warrants that the title has no problems or encumbrances that arose while he owned the property, and no guarantees for the any period of time prior to that.
As a result the grantor of this kind of deed is only required to defend the title against claims that might arise during his ownership. Most banks selling properties from their REO departments insist on giving a Limited Warranty, rather than General Warranty, deed.
A Fiduciary Deed (including Guardian’s Deed, Trustee’s Deed, Executor’s Deed, Tax Deed, and Sheriff’s Deed) is always given by someone who is acting on behalf someone else, and gives no warranties as to the state of the title. Since a fiduciary is someone who is appointed to convey title on behalf of the seller, the deed contains language that states that the act of selling the property falls within the duties of the fiduciary, and, in the case where the fiduciary has been appointed by a court of law (as when the fiduciary is a guardian, executor, or sheriff), that he has been appointed by a court of competent jurisdiction.
A Quit Claim Deed makes no warranties at all about the title. It conveys whatever rights and interest the grantor has without stating the nature of that interest, or whether it exists at all. Quit claim deeds are usually used to resolve title problems or to “merge” interests. For instance, I received a letter a few years back informing me that I was being named in a foreclosure suit on a property that I sold over 5 years ago. Why? Because when I sold the property, the title agent neglected to have my husband sign the deed. Although he wasn’t on the deed in the first place, Ohio is a dower rights state, which means that my husband could claim an interest in the property by virtue of having been married to me at the time I bought it. If he was not named as a potential interest holder in the foreclosure, he could later come back and claim an interest in the property.
We resolved this by having him sign a “quit claim deed” to the bank, which released his interest to the lender without giving any warranties as to the condition of the title. Quit claim deeds are also used in divorces, to give the interest of one spouse to another, and in estates, when several heirs have agreed that an inherited property should be given to just one heir.
Quit Claim Deeds are also used extensively in the bulk buying and selling business—in fact, most bulk purchases are made this way.
In some states, Quit-Claim Deeds are not legal forms of title transfer, and in others, they have alternative names. In Massachusetts, for instance, they are called Release Deeds.
So, What Do You Do if the Seller Wants to Convey Title via a Deed Type that You Don’t Want?
Real estate investors seem to fall into 2 categories in terms of their preferences about deeds: the “I have no idea what this deed means, but it’s a deed, so I’m happy” category, and the “If I can’t get a General Warranty Deed, I ain’t buyin’” category.

Both extremes are just that—extremes.

When you get right down to it, what you want from a deed is one that:

Transfers all of the rights of ownership to you, free and clear of any defects (that is, title problems) that will cause you problems later
Will be marketable when and if you decide to sell the property, which is another way of saying the same thing
Whatever the “type” of deed, the only way to know that these things are true is through a title search, and the only way to absolutely assure that if there’s any problem, you won’t have to pay for it is through title insurance.

And guess what? You can get a title search before purchasing ANY property, no matter what the deed type. Yes, it will cost you a few hundred dollars, but if you care about the marketability of your title, you’ll do it.

Title insurance is a slightly different matter. In some states, it’s not possible to buy title insurance for certain types of deed transfers. For instance, in some places you can’t get title insurance on properties transferred by Quit Claim deed; in others Tax Deeds can’t be insured.

So what’s the answer? One is to get your title search, buy the property, then immediately re-convey it to another entity that you own, this time getting both a title search and title insurance.

Another is to do it the cowboy way—buy the property at such a low price that you don’t care about the marketability of the title.

HUH?

Yep, I’ve known people who’ve gotten such great deals on houses that they’re willing to hold them forever, risk never being able to re-convey clear title, and so on, BECAUSE THE PROPERTY WILL MAKE SO MUCH MONEY AS A RENTAL that they just don’t care that much. I myself have bought properties with known title problems—I just buy them so cheaply that I know that I can pay thousands of dollars to resolve them, if necessary.

The lesson is, though, to understand WHAT you’re getting and what the ramifications of that kind of deed are. This way, you can intelligently accept any risk you might be taking on.

Reprinted with permission of Vena Jones-Cox. To get more free articles and tips, subscribe at www.TheRealEstateGoddess.com