Purchasing a new property can quickly become stressful and overwhelming. There is a lot of paperwork and many confusing terms in the mix. To make the process much easier, it is important to know some of the key terms.
You likely have heard of the real estate terms “title” and “deed”. Many times, these two terms are used interchangeably, but they actually have different meanings. While a title and deed are related, they are different documents, and you will need both when owning a property.
So what exactly is a property title? What is a deed? And, what’s the difference between a title and a deed?
In this post, we will break down the concepts of a title and deed and explain all you need to know about each of them. Read on to learn more about a deed vs title.
Real Estate Title
Technically, a title can be applied to any item, but it is most commonly used for more expensive purchases like a vehicle or real estate. In real estate, the property title defines who has the legal ownership and right to use a property. The house title gives you the legal right to use the property how you want to. The title encompasses a “bundle of rights” which includes:
- The right of disposition
- The right of control
- The right of possession
- The right of enjoyment
- The right of exclusion
Selling a property involves transferring the title. The title is not actually a set of documents, it is a concept, and the new owner must “take the title” to own the property. People can hold a real estate title for different reasons. Some common real estate titles include those for:
- Commercial properties like warehouses, shopping centers, retail spaces, or office buildings.
- Residential properties including apartments, homes, or condominiums.
- For your primary residence or investment property.
Clearing the Property Title
Before transferring the property ownership, you must “clear” the title. In essence, you must prove there are no bankruptcies, liens, or judgments on the property. A new buyer does not want to incur any former debts on the property. A title search is done before closing to ensure the title is clear.
Always make sure the title is clear of defects before closing on a property. Any issues must be resolved before the title transfer. Some of the most common title defects are:
- Boundary encroachments
- Unpaid taxes
- Liens from child support or bankruptcy.
- Former errors in the paperwork that cause improper title transfer.
- Bankruptcy
If the title has any defects, it is not “clear” and cannot be transferred. The seller must confirm the title is clear and resolve any defects before it is possible to close.
Protection Against Title Defects
As a buyer, you should protect yourself against title defects. The first step is to perform a title search to look for defects. Most real estate attorneys are able to perform the search. A title search is a simple way to catch any title defects before you buy the property.
It is also a good idea to include a contingency in your home. In your home purchase agreement, add a contingency that requires the current owner to prove the title is clear. If the seller cannot prove they have a clean title, then you can end the agreement for no additional fee. This method ensures you are not obligated to purchase a property with a defective title.
The steps above are ones you should always take before closing on a property. However, if it is too late and you uncover a problem with the title after the purchase, then title insurance can help. Title insurance will protect you if past ownership claims arise. It is important to remember that a title insurance policy does not erase the need for a title search.
Title Insurance
Title insurance protects you from title defects that were not discovered during the title search. It is a good idea to get title insurance regardless of if you are paying for the property in cash or with a mortgage loan. Although the insurance is not required if you are paying in cash, it is usually mandatory when obtaining a mortgage loan.
The insurance will protect you from liens, claims, or other issues that were not documented or found during the search, and is a small investment that protects your property and can save you immensely. While it is unlikely that you will receive payment from title insurance, it is required in most transactions and will protect you in case of an unexpected issue with the title. Without title insurance, a title problem could cost you your entire property. Your property is not worth the risk, which is why title insurance is required for mortgage loans.
What is a Deed?
Now that you understand the basics of a real estate title, it is time to dig into what a house deed is.
Unlike the title, the property deed is an actual document that represents the title transfer. The property deed describes the property and what is included in the title transfer. For the deed, the seller is known as the grantor and the buyer as the grantee. Both the grantor and the grantee must sign the deed to fully seal the title transfer.
The property buyer will get the physical deed to prove they own the title to the property.
Distinguishing Between Title and Deed
Physical Document vs. Legal Concept
A primary distinction between a title and a deed lies in their nature. While a deed constitutes a physical document signed and executed during a property transfer, a title represents the abstract concept of ownership rights. Simply put, a deed is tangible and recordable, whereas a title is intangible, representing the legal status of property ownership.
Purpose and Functionality
The core function of a deed is to facilitate the transfer of property ownership by legally conveying the title from the grantor to the grantee. It serves as conclusive evidence of the transaction, delineating the rights and obligations vested in the new owner. Conversely, a title encompasses the broader spectrum of ownership rights, including the right to possess, use, enjoy, and dispose of the property as deemed fit.
Roles in Real Estate Transactions
In the intricate web of real estate transactions, titles and deeds play indispensable roles, each serving distinct purposes. During the closing process, a meticulous title search is conducted to ascertain the property’s ownership history, uncovering any encumbrances, liens, or claims that may impede the transfer of clear title. Subsequently, the deed is executed, formalizing the transfer of ownership rights and ensuring legal clarity and certainty for all parties involved.
Types of Deeds
There are a few different types of deeds that are used. The main types of deeds include:
Grant Deed
A grant deed demonstrates that you have a clear title and do not know of any issues with the title. However, the grant deed does not include a warranty that you will defend the deed against future claims after the sale.
Bargain and Sale Deed
For a bargain and sale deed, the seller does not have to clear the title. In this case, the buyer also does not have protection. Bargain and sale deeds are commonly used when the property is being sold as a foreclosure or in a tax sale.
General Warranty Deed
The general warranty deed is the most common for home sales as it offers the greatest protection for the buyer. A general warranty deed ensures you have a clear title and right to sell the property with no knowledge of any title issues. This deed also covers unforeseen issues for the entire life of the property, not just during the seller’s time owning it. The general warranty deed also dictates that nobody else has rights to the property.
Special Warranty Deed
The special warranty deed is very similar to the general warranty deed. However, while the general warranty deed promises a clear title for the entire history of the property, the special warranty deed only covers the title for the time the seller owned the property. Special warranty deeds are most often used for commercial real estate.
Quitclaim deed
The quitclaim deed provides the least protection for property buyers. The quitclaim deed is often used when the property is given as a gift. While the quitclaim deed transfers the title to the buyer, it does not guarantee a clear title. If the buyers find out that the seller was not legally able to sell the house, they cannot take any recourse after the transfer.
While the terms “title” and “deed” are often used interchangeably, they represent distinct facets of property ownership with unique roles and implications. Understanding the difference between title and deed is crucial for individuals engaged in real estate transactions, enabling informed decision-making and ensuring legal clarity and certainty. By demystifying these concepts and acknowledging their significance, stakeholders can navigate the dynamic landscape of real estate with confidence and proficiency.