Types of Deeds Used in Real Estate Transactions
We often focus on the importance of the real estate contract in a transaction, because this document sets forth all terms of the deal and is legally binding. However, signing a real estate contract does not equate to a transfer of property. Only when the buyer holds a deed from the seller, does he or she actually own the property in question.
A typical real estate deed must contain:
- a detailed description of the property
- the name of the person to whom the property is being transferred (the transferee)
- the signature of the individual or entity transferring the property (usually the seller), acknowledged by a notary
The deed must be delivered to, and accepted by, the transferee, before it becomes effective. The transferee may then record the deed with the Recorder’s Office in the County where the property is located.
The information contained on the deed is fairly straightforward; however, there are several different types of real estate deeds which may be used to convey property. The type of deed used in a transaction is based upon the degree to which the seller warrants the title being conveyed to the buyer. There are three levels of deeds.
A Grant Deed (also called a Special Warranty Deed) (the middle level) is the most common type of deed used in California real estate transactions. When a seller conveys property to a buyer by Grant Deed, the seller guarantees that he or she holds title to the property and has not previously transferred title to anyone else. A Grant Deed can include exceptions to the title guarantee. The Grant Deed may, for example, identify an easement running across the property. Any exception listed in the grant deed will not be covered by the title guarantee, so the buyer takes title subject to those listed exceptions.
A Warranty Deed (the top level) is less common in California and explicitly guarantees that the seller has good title to the property, meaning it is free of liens or claims of ownership. It may make other special and particular promises to the transferee, to address particular problems in the transaction.
A Quitclaim Deed (the bottom level) transfers all interest the seller has in the property. In other words, a seller conveying title by a Quitclaim Deed essentially says, “I may or may not have any interest in the property but I convey to you whatever interest I do have.” This type of deed contains no guarantees of the seller’s title to the property, so the buyer cannot sue the seller if problems with the title later arise.
A Trust Deed, although called a “deed,” does not permanently transfer title to property. It is a device used to encumber property as security for a loan. There are three parties to a Trust Deed: Borrower, Beneficiary (i.e., Lender) and Trustee. The Borrower signs the Trust Deed, thereby transferring legal title to the Trustee (usually a title company). The Trustee holds legal title to the property for the benefit of the Lender. The Trustee acts at the direction of the Lender. When the loan is repaid, the Lender instructs the Trustee to reconvey the Trust Deed. The Trustee reconveys the Trust Deed, thereby removing the encumbrance from the property. If the Borrower defaults on the loan, the Lender has the right to foreclose and force a sale of the property to pay the loan.
Whichever type of deed is used in a real estate transaction, problems can and do sometimes arise after closing. If you have a question about the deed to your property, consult with an experienced real estate attorney about your rights.