Title versus deed: what’s the difference? Ownership of different kinds of property is documented differently. A car has one title document that is on file with the state; it shows who the current owner is, and who the lien holders are. In contrast, title to real estate may be affected by many separate documents, which are filed in the
real property records of the county where the land is located.
Property rights are often explained as being like a bundle of sticks. Each stick represents a different
right. For example, a lease is a right to possession of real property, a lien is notice of a security
interest in the property to secure a debt, an easement is a right to use the property for certain
purposes, a declaration of homeowners association will establish rights to govern the use of
property, and a deed conveys ownership of the property. Each tract of real estate will have several
documents that determine who has what rights to the property, but the most basic is the deed.
There are many kinds of deeds, and the primary differences between them are the degree to which
the Seller guarantees title to the Buyer. The most common type of deed used is a warranty deed,
in which the Grantor/Seller guarantees to the Grantee/Buyer that they are conveying clear title to
the property. If a lien or claim on the property is later made, the Buyer will have a right to sue the
Seller for breach of the warranty.
To protect against the possibility that the Seller can’t be found or has no money to clear up issues
that arise, Buyers should purchase title insurance at the time of the sale. That way, if a lien or other
claim to the property is found, the Buyer can simply make a claim on the title insurance, and let the
title insurance company handle it, rather than relying on the Seller to fix the problem.
Before issuing a title insurance policy, the title company will do a complete search of the real
property records to determine what claims may already exist. Then they will issue a title
commitment, which sets out what claims will and will not be covered, and if there are any that need
to be resolved or released (such as an outstanding mortgage which will typically be paid at closing).
In this way, title insurance is significantly different than your home or auto insurance. Home and
auto insurance cover you for the accident that may happen after you buy the policy, while title
insurance covers for those claims which existed before the policy was issued. Therefore, the title
company will make every effort to eliminate such claims before closing the sale and issuing the
policy.
Sometimes, due to a perceived savings, people use a quit claim deed to attempt to transfer title.
(These same people often incorrectly refer to them as “quick claim” deeds.) Unfortunately, quit
claim deeds usually cause more problems than they solve. This is because a quit claim deed
transfers only the Grantor/Seller’s interest in the property, not title to the property itself – the
Grantor is only “quitting”, or giving up, their claim to the property. Since they have not actually
transferred title, when the Grantee/Buyer later tries to sell the property, they find that they don’t
own it, and can’t sell it, lease it, get a loan against it, or leave it to their heirs. A sale by quit claim
deed is never handled through a title company, (because a title company won’t insure title under
a quit claim deed), so there won’t be title insurance. Instead, the Buyer is left to deal with the
issues on their own.
Quit claim deeds are often used between family members, or between individuals and a company
they own, because these transactions as informal, and perceived as carrying little risk. However,
risk cannot be accurately measured, especially without a complete review of the real property
records. Instead of a quit claim deed, it may be better to use a warranty deed, a special warranty
deed (in which the seller guarantees that there are no other liens on the property by through or
under the Seller), a deed without warranty, or a gift deed. Each has its own benefits and drawbacks,
and will be appropriate in different circumstances.
In addition to a quit claim deed in the chain of title, other typical title problems include 1) a lien
which was recorded after the contract for sale, and before the transfer of title to the Buyer; 2)
unpaid property or income taxes; 3) an encroachment (a structure on the property that needs to
be removed, or an easement which was unrecorded or has been disregarded); 4) someone claiming
ownership by adverse possession; or 5) a document in the chain of title that contains an error. The
high cost of fixing these issues is the reason for purchasing title insurance.
If you have a title problem that is not covered by title insurance, call your favorite lawyer, because
it Feels Good to Prevail!
