Property deed vs. title: you hear the terms thrown around interchangeably all the time. In truth they are tied at the hip but not one and the same. When you sell your house, here’s how you should think of the two:
Title refers to your legal ownership of a home—it gives you the right to live there and sleep there and use it as you wish. “Title,” though it sounds like a document you’d find in a three-ring binder somewhere, is a concept, not a piece of paper. In case this definition is still a little foggy, know that title refers to a “bundle of rights” to a property that gets transferred from seller to buyer, including:
- The right of possession
You own the property, it’s yours!
- The right of control
You can use the property as you please, so long as you don’t break the law.
- The right of exclusion
Go ahead, be the cranky neighbor who tells people to get off your lawn (we kid, but technically it is your right). It’s also your call to say who can enter the property.
- The right of enjoyment
Play basketball in the driveway, sip coffee on the porch, throw a party! Do what you like, so long as it’s not illegal.
- The right of disposition
What’s yours to keep is yours to sell. The right of disposition gives you the ability to transfer ownership of your home (with some exceptions, explained below).
Note that you “take title” to a house when you buy it, and the title gives you the legal go-ahead to sell it again someday. But there’s a hitch.
You can’t transfer ownership of a property until you “clear title.” That means you’ve proven your title to the house is free of any clouds or defects such as liens, judgments, or bankruptcies.
Essentially the buyer of your house (and the lender financing the transaction) doesn’t want to take on any of your old IOUs that use the property as collateral. Before closing, a title company or real estate lawyer will conduct a title search to check for any of these potential problems.
Any title issues identified in the title search have to be cleared before the sale can move forward.
Common title defects include:
- Contractor liens put against your house for that kitchen remodel
- Improper title transfers due to a past paperwork error
- Unpaid taxes
- Bankruptcy filings
- Child support liens
- Boundary encroachments
- …And many more!
Until you can confirm the absence of any defects—or resolve those that do come to light—you don’t have a “clear” or “marketable” title to transfer to the buyer, and your sale will come to a halt.
Ok, so that’s title. Now what about the deed?
The deed is the physical document that conveys the title to the new owner when you sell your home. The property deed will include a description of the property and identify the grantor (seller) and grantee (buyer) for a particular transaction. Both you and the buyer will need to sign the deed to seal the real estate deal.
Because it’s a physical, legal document, the buyer of your home gets the actual deed in their hands at the time of sale, which proves they have title to the house. There are a few main types of deeds to note:
General Warranty Deed
The General Warranty Deed is most commonly used in traditional home sales and provides the most protections for people buying your home. It means that you, the owner, have clear title and a right to sell the property, and no knowledge of any unforeseen issues that might come up with the title for the life of the property, not just since the time you owned it. It also says that no one else has rights to own the property.
Special Warranty Deed
A Special Warranty Deed is similar to the General Warranty Deed with one exception—it only promises clear title for the time you’ve owned the home. This is generally used for commercial real estate transactions, and can also be called a Covenant Deed.
A Grant Deed, like the two types of warranty deeds, shows that you have clear title to sell and no knowledge of anything that might impact the title. But it doesn’t include the warranty that you’ll defend the title against other people who may end up having claims to it after the sale takes place.
A Quitclaim Deed offers the least amount of protection for a buyer of your home. It’s normally used when a property owner gifts a house to someone else. The Quitclaim Deed transfers rights and ownership to the buyer, but without any guarantee that the seller is actually able to do so. The seller may not even legally be allowed to sell the house, but the buyer wouldn’t be able to take any recourse against the seller after the fact if that was the case.
Bargain and Sale Deed
If your home is being sold in a tax sale or foreclosure the property may be sold with a Bargain and Sale Deed. This means that the seller doesn’t need to clear title and there are no protections for the buyer—so, for example, if you’ve got liens on the property, they stay with it when you sell and the buyer is responsible for cleaning everything up after the fact.
Abstract of title
While we’re talking about deed vs. title, there’s another term worth explaining: abstract of title. Although “title” is a concept rather than a document, material facts related to a property’s title may be documented in the form of an abstract.
An abstract of title is the condensed form of a property abstract, which tracks your home’s legal history and past chain of ownership. As a homeowner you may have the abstract of title—potentially a thick stack of paperwork—stored in a file cabinet somewhere.
The abstract of title most often includes “a summary of the original grant, subsequent changes in ownership and any encumbrances on the property, and finally a statement by the person preparing the abstract that it is complete and accurate,” according to online legal tech company Rocket Lawyer, which serves 20 million users.
How title insurance comes into play
Let’s say you put your house up for sale, attract an offer, and before closing the buyer’s title company conducts a thorough title search to check for any liens or defects on the property per standard procedure. The title company comes back to you and the buyer and says, “You’re good to go! We didn’t find any issues. This sale can go ahead and move forward.”
Wonderful. The buyer moves forward with the purchase, and you sell the house no problem.
A year later, the buyer who thought they covered all their bases with their new home’s title, comes to discover a hidden title issue with the house that will cost them thousands of dollars to remedy. And now they’re the ones on the hook to fix it. You (the seller) are long gone and have no obligation to deal with the problem.
Enter title insurance. After the title search on a property is completed, and even if the search shows a free and clear title, both the buyer of the home and the lender financing the home will likely use title insurance for protection from an event like the one described above.
First American Financial Corporation explains that:
“Even the most skilled title professionals may not find all problems associated with a property. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify.”
With title insurance, the idea is that a buyer who faced an unexpected title issue could file a claim and get coverage, rather than having to pay for the fix out of pocket.
Mo Choumil, founder and CEO of ATG Title in Fairfax, Virginia, recently ran into an issue like this. A local home backed up to railroad tracks and should have had an easement noted in the property’s description. But there wasn’t one documented, so now the house won’t sell without a correction to the deed, which would cost tens of thousands of dollars, Choumil said.
No company will insure the house until the easement issue is resolved. And the current owner can’t just write in the corrections, either. For deed issues, you need to have a corrective deed drawn up, and get it notarized and recorded with the appropriate legal office in your town.
Note that a title insurance policy does not negate the need for a title search, but is issued regardless of the title search outcome. Typically the seller will pay for the buyer’s title insurance policy, while the buyer pays for the lender’s title insurance, but this may be up for negotiation.
The percentage of people who receive a payment from their title insurance is low—only about 4% to 5%; however, almost all lenders will require title insurance in a standard transaction. The bottom line is: the risk of hidden defects is still high enough to call for insurance.
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