When you’re going through the homebuying process, there are several finance terms and legal phrases you’ll need to understand. In addition to learning about mortgage terms, you should also find out more about the documents you’ll see when you close on a house, including your deed.
A house deed is a document that names the owner of a property. It’s crucial in any transaction because a deed confirms the ownership and must be provided to a new buyer during the transfer of ownership. When a deed is recorded, it’s public record. If there’s ever a legal dispute over property ownership, the deed and the names listed on the document can usually solve it. If a deed isn’t recorded for a property, it can cause legal problems over ownership. More specifically, an unrecorded deed can make it tough for heirs to prove their rights to the property when the owner dies.
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Types of Deeds
There are two main categories of deeds: official and private. Official deeds are created and filed due to a court order or legal proceeding. More commonly, private deeds are filed by business entities or individuals to show the exchange in ownership of a property. Within these broad categories, there are six general types of deeds.
General Warranty Deed
A general warranty deed is the most common type of deed because it’s usually used when a home is sold to a new owner. With a general warranty deed, the seller of the property, called the grantor, confirms the transfer of complete property ownership to the buyer, called the grantee.
With most general warranty deeds, the seller makes several promises, including that the property is free of liens and that 100% ownership is transferred to the buyer. This deed usually also confirms that the seller will provide the new owner with any documents necessary to make the title valid for complete ownership.
Special Warranty Deed
A special warranty deed offers less protection to the buyer, therefore you should ask for a general warranty deed when buying a house instead. With a special warranty deed, the seller only promises that the property has no defects from the time that the seller was the owner and held the title for the property.
The seller makes no guarantees about the validity of the title before the seller owned it, which can be concerning for buyers. These types of deeds are usually used in commercial property transactions when the seller held the property for a short time and didn’t perform a thorough title search or investigate the history of the property.
A quitclaim deed provides the least amount of security to the property buyer. Also called a non-warranty deed, a quitclaim deed displays the interest a current owner has in the property and transfers it to the buyer. However, this deed doesn’t make any promises regarding the title or its potential defects.
If there aren’t any defects, the quitclaim deed is just as effective for the buyer as a general warranty deed. However, if there are title defects, the seller makes no promise to assist in resolving these issues. Therefore, this type of deed is risky for a buyer. Quitclaim deeds are generally used when the seller doesn’t know the history of a property and wants no liability in regards to the title.
Bargain and Sale Deed
Bargain and sale deeds are generally used by local governments or in foreclosures. These deeds offer no covenants or promises from the seller, so there’s no guarantee that the buyer will get a title without defects.
If it turns out the seller didn’t have a good title, the buyer cannot get a refund for the property since they agreed to the transfer of ownership. This type of deed offers no security for the buyer.
Special Purpose Deed
Most special purpose deeds are used in legal proceedings or when an official is representing a party to the deed. There are several types of special purpose deeds, including:
- Administrator’s deeds: This deed is used by a court administrator to claim the new owner of a property when its previous owner has passed away without a will.
- Executor’s deeds: When a property owner dies with a will, an executor’s deed is used to transfer ownership to the person named.
- Sheriff’s deeds: This deed is provided by a debtor to the bidding winner at an auction sale to satisfy judgement against the current property owner.
- Tax deeds: A tax deed is issued to a new owner when a property is sold due to tax delinquency.
- Deeds in lieu of foreclosure: A borrower who is in default on a mortgage can give this deed to the lender to avoid foreclosure and terminate the loan.
- Deeds of gifts: A deed of gift is issued by the current owner to a new owner when a property is given away with no exchange of funds, generally as a gift to a relative or friend.
Elements a House Deed Should Include
A house deed must include specific information as a legally binding document. Each state sets its own guidelines a deed must follow, but there are several federal regulations that must be adhered to when filing a deed, including:
- It must be in writing or printed on paper.
- The current owner (grantor) must be legally able to transfer ownership.
- It must have an adequate property description.
- The grantor and grantee must be identified.
- It must use legal language to transfer the property and convey terms adequately.
- The grantor(s) must sign the document.
- It must be legally delivered to the grantee (buyer) and accepted.
Deed vs. Title
Deeds and titles are often used as interchangeable terms because they both refer to property ownership. However, there are differences between a title and a deed. A title is a document that identifies the legal right of a property owner to transfer ownership to another party. This document also identifies how much ownership a party possesses and, therefore, how much can be legally transferred. A deed simply provides proof of ownership and identifies the owner of a property.
Whether you’re a first-time homebuyer or you’re gifting a property to a family member, you’ll need to provide a deed when you close on a property. This deed legally records the name of the property owner and outlines the terms for obtaining the title so there are no legal discrepancies.
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