If you own your own home you have probably seen a deed. But did you know that the words you use on the deed can make a huge difference on how the real estate is going to be treated for transfer of ownership, probate or title purposes?
On numerous occasions, I have reviewed deeds that do not operate as intended. Someone has drafted their own deed because they found the form online or at the stationary store. I have often heard, “It’s only one page long. How difficult can it be?” It may look easy to draft a deed, but it is even easier to mess it up.
Any discussion about deeds must include a discussion about the different types of deeds, the general elements of a deed, different types of ownership interests and, if you have multiple owners of the property, a description of the rights of each of the owners. Today’s column will discuss different types of deeds. The three most common types of deeds that I have seen used are warranty deeds, quit claim deeds and fiduciary deeds. Each of these types of deeds conveys different interests in the real estate.
With a warranty deed, the seller or transferor, who is called the grantor, transfers or conveys an ownership interest in their real estate to the recipient or transferee who is called the grantee. The grantor in a warranty deed also guarantees or warrants that they have good title to the property and are transferring or conveying that good title to the grantee. A warranty deed is probably what you received when you purchased your home, especially if you took out a mortgage. Most lenders do not loan money secured by a mortgage on real estate unless you received clear title to the property by a warranty deed.
Another common type of deed is the quit claim deed. A quit claim deed is sometimes improperly referred to as a “quick” claim deed. When you transfer property by quit claim deed, you are only transferring the interest that you own in the property. You do not warrant that you have clear title. When you receive property by quit claim deed, there is generally no assurance that you are getting anything. You are only getting what the grantor has. If you are buying real estate, do not accept a quit claim deed, demand a warranty deed or a fiduciary deed.
Arguably, anybody can give a quit claim deed to anything. All you are saying to the person to whom you are giving it is, “I am giving you what I have and that can be nothing.” There is no warranty of title and that could be a problem, especially when you quit claim deed to family members.
When you originally purchased your home, you probably received title insurance. You may have transferred your home to your children by quit claim deed. There then may end up being a problem or a defect on the title at a later date. In that instance, your children would not have a claim against you so you would not have any claim against your title insurance.
However, if you transferred the property to your children with a warranty deed, they would have a claim against you for the defect in the title. If it can be determined that the defect was present when you purchased the property, you then may be able to make a claim against your title insurance to clear up that defect.
Because of this potential loss of title insurance coverage, I rarely use quit claim deeds. In most instances, I use a warranty deed, especially when I draft a deed which is transferring property to the grantor’s revocable living trust or between family members. About the only time I use a quit claim deed anymore is when there is going to be a transfer of a partial interest in the real estate such as mineral interests, easements and land contract seller’s or purchaser’s interests.
The last type of deed that I see on a regular basis is a fiduciary deed. The grantor of a fiduciary deed is usually a personal representative of an estate or a trustee of a trust. These financial representatives are called fiduciaries, hence the name fiduciary deed.
The grantor of a fiduciary deed generally conveys an entire interest in the real estate, but does not guaranty or warrant the title. Because of this, when you are receiving an interest in real estate with a fiduciary deed, it is especially important that you obtain title insurance to protect your interest.
As you can see, small words such as “convey”, “warrant” or “quit claim” can make a huge difference in the interest you are receiving in the real estate. A good real estate attorney should be able to assist you to make sure your interests are protected.
By Matthew M. Wallace, CPA, JD
Published edited August 1, 2010 in The Times Herald newspaper, Port Huron, Michigan as: No badly worded deed goes unpunished