Types of Deeds

Types of Deeds

For those of you who don’t know, a deed is a legal document that transfers one person’s title to another. Or, in some instances, the written proof of ownership for some form of asset or interest.

Deeds are the legal documents that transfer title. It is the written document itself that conveys ownership. Deeds must be in writing and usually found at the county courthouse in which the property exists.

There are many different types of deeds, and we are going to go over the most common and the ones that will surely show up on the real estate exam. When a property changes hands, it can change hands in different forms (with different qualities), that’s where the various types of deeds come into play.

What is a General Warranty Deed?

Definition: A deed where the grantor (seller) guarantees that he or she holds clear title to a piece of real estate and has a right to sell it to the grantee (buyer).

The most common type of deed is a general warranty deed.

The general warranty deed offers the grantee the most protection. With this type of deed, the grantor makes a series of legally binding promises (called covenants) and warranties to the grantee agreeing to protect the grantee against any prior claims and demands of all persons whomsoever in regards to the conveyed land.

General warranty deeds protect homeowners from stakes and claims from previous people, from the beginning of time to right now. It also protects homeowners from any potential encumbrances. A general warranty deed grants an undeniable fact that this property is coming with no liens and no heirs they could potentially lay claim to the piece of property.

What is a Special Warranty Deed?

Definition: A deed in which the grantor warrants only against defects occurring during their ownership.

A special warranty deed is a variation of the more commonly issued general warranty deed.

So what does this mean? Well, some deeds offer no warranties at all, so a special warranty deed is at least one step above that as far as protections are concerned.

Both general and special warranty deeds provide a guarantee that the seller owns the title and is free to sell the property. With a special warranty deed, the title warranty is only for the period during which the seller held title to the property. Special warranty deeds do not provide a guarantee against any mistakes that may have existed before the seller’s ownership of the property. Thus, the grantor of a special warranty deed is only liable for debts or other encumbrances to the title that they caused or that happened during their ownership of the property.

So in plain terms. Where the guarantees in a warranty deed cover the property’s entire history, the special warranty deed only covers the time the seller owns it.

What is a Quitclaim Deed?

Definition: A deed that contains no title covenant and thus offers the grantee no warranty as to the status of the property title.

A quitclaim deed releases a person’s interest in a property without stating the nature of the person’s interest or rights, with no warranties of that person’s interest or rights in the property.

Quitclaim deeds are typically used to transfer property in non-sale situations. Non-sale situations such as transfers of property between family members. Quitclaim deeds are used to add a spouse to a property title after marriage, remove a spouse from a title after divorce, and much more.

What to Know for the Real Estate Exam

You need to know what a deed is, remember: a deed is used to prove ownership of a property and the quality of ownership. Secondly, you need to understand the three most important types of deeds: General warranty deeds, which hold the most protection. Special warranty deeds that hold some protection. And lastly, quitclaim deeds which hold no protection.

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Equitable Title

Equitable title is the interest held by one party to purchase property before closing.

Before we jump into specifics, though, if you have no idea what title is – title exists to prove ownership. Having title is not a physical thing, though. It’s NOT like a deed where there is an actual paper in the courthouse that says you own the property. No. Title is merely a legal concept.

Now with that being said, let’s take a look at the term equitable title.

What is Equitable Title?

Definition: The interest held by one party to purchase property before closing.

So what does that mean? Well, there are different levels or steps during a transaction. Closing is the final step. However, in between closing and the execution of a sales contract, the buyer has something called equitable title. Meaning, they have the right to purchase the property before closing. They do not have the deed, or full ownership because closing has yet to occur.

During this time frame, the buyer may need to deal with loan approvals, inspections, due diligence, or other contingencies. During this time frame, the seller cannot back out of the offer because the buyer has equitable title. So simply put, having equitable title is the right to obtain absolute ownership of a property. Once they obtain absolute ownership, they earn full title. Full title meaning they have the deed in their name.

What to Know for the Real Estate Exam

Understanding equitable title is really important for your real estate career. It also may show up on the real estate exam. Specifically, in questions that have to deal with contracts, closing, deeds, and more. Make sure you remember in real estate that an equitable title is the interest held by one party to purchase property before closing.

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Title vs Deed: What’s the Difference?

Title and deed are two incredibly important real estate concepts. The terms are thrown around interchangeably all the time, but they are not precisely the same thing. The average person assumes that deeds and title are the same things, but they are actually two separate legal concepts.

What is Title?

Definition: The legal concept of saying you own a right to some form of asset or interest.

If someone has title, that means that they have the right to own something like a house or property. Title might sound like a document or piece of paper, but it actually is not. It’s just a legal concept, not a piece of paper.

Now as for deeds things are a little bit different.

What is a Deed?

Definition: The legal document that transfers title from one person to another, or the written proof of ownership, for some form of asset or interest.

So what does that mean? Well, deeds are the legal documents that transfer title. It is the written document itself that conveys ownership. According to the Statute of Frauds, deeds must be in writing and usually can be found at the county courthouse in which the property exists.

What’s the Difference Between Title and Deed?

Having title is not a physical thing. It’s NOT like a deed where there is an actual paper in the courthouse that says you own the property. No. Title is merely a legal concept of ownership.

See the difference? Deeds, on one hand, are actually the legal documents that transfer title. While having title is the concept of owning the right towards an asset or in our case property.

Now, it’s also worth mentioning car titles, and real estate titles are not the same concept. I think this is why the difference is so confusing for people, and people get deeds and titles mixed up in real estate. Because yes, when it comes to car titles, they are a physical piece of paper, but that is not the case for real estate.

How are Title and Deed the Same?

We need both deeds and title because proof of ownership is critical, especially in real estate. Real estate is unique in a lot of aspects, as I’m sure you already know. Obviously, it’s costly, and it has the ability to make people money. Would you want to buy property if you weren’t able to prove you own it? Probably not.

Both deeds and title are simply used to prove ownership of a property, which is why they are commonly mixed up. While someone may ask for a title and is referring to the deed, most people understand what they are talking about. So you don’t exactly need to be a member of the grammar police when you are talking to your clients. It does remain incredibly important to understand the distinction of the two for your real estate exam and, of course, in a professional setting.

What to Know for the Real Estate Exam

Understanding the difference between the two terms is essential come exam day. It is also incredibly important to understand the different forms of deeds which you can check out here.

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Attorney-in-Fact

In your real estate career, you will hear the term power of attorney, and attorney-in-fact plus it shows up on your exam, so understanding the terms is essential.

What is an Attorney-in-Fact?

Definition: Someone authorized to act on behalf of another person, typically in business or for some sort of business transaction.

So what exactly does that mean? Well, when it comes to business, financial or personal matters, an attorney-in-fact can represent someone else’s interests. This is incredibly helpful for many people and can save massive amounts of time. Business people can authorize an attorney-in-fact to do things like sign checks, do tax returns, enter contracts, and of course, buy or sell real estate.

It’s worth noting. Contrary to how it sounds, an attorney-in-fact is not necessarily a lawyer. An attorney-in-fact can be a family member, friend, business associate, and more.

So how does someone become an attorney-in-fact? Well, that’s where power of attorney comes into play.

What is a Power of Attorney?

Definition: A legal document that authorizes someone to act on behalf of another person, typically in business or for some sort of business transaction.

You heard that right for someone to be an attorney-in-fact, they must obtain a legal document called a power of attorney. See the difference? The two terms typically go hand and hand, which is why we are talking about them today!

A power of attorney can end for numerous reasons, such as if a principal dies, revokes it, or the courts find any reason to invalidate it. Once a power of attorney ends, that person that was an attorney-in-fact is no longer.

Attorney-in-Fact and Power of Attorney Example

Let’s say a man named Jake lives in Boston, but owns property across the U.S. He owns property in cities like Pittsburgh, Philadelphia, and D.C. Jake decides he wants to sell his property in D.C. Instead of traveling all the way to D.C. to complete all the paperwork, he calls up his buddy Matt. Jake authorizes Matt, who lives in D.C., to sell his property for him. Jake gives Matt power of attorney and is now acting as his attorney-in-fact.

What to Know for the Real Estate Exam

Well, understanding the difference between the two terms is essential come exam day. Remember, an attorney-in-fact is someone authorized to act on behalf of another person, the legal document that authorizes that person is called a power of attorney.

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Eminent Domain, Condemnation, and Inverse Condemnation

Eminent domain is the governments right to take over privately owned real estate for public use. Eminent domain is a government power granted by the constitution and protected under the fifth and fourteenth amendments. This article also covers the difference between condemnation and eminent domain. Make sure to read all the way through to understand the difference!

What is Eminent Domain?

Definition: The right of the government to take over privately owned real estate for public use.

It’s worth noting, in some cases, private entities may also have the power of eminent domain for projects considered public use.

Eminent domain is the government’s constitutional right to take over privately-owned real for public use (usually despite the owners’ wishes). Eminent domain for the federal government is protected under the Fifth Amendment of the Constitution, while for state governments, it is protected under the Fourteenth Amendment.

Eminent Domain Example

Here is a quick and easy example.

Let’s say Mr. Johnson lives on a property right next to a bridge. The state wants to widen the bridge due to the higher amounts of traffic reported. The state needs the space on either side of the bridge to widen the road.

The government then seizes Mr. Johnson’s property and gives him $150,000 for it. Mr. Johnson does not have the opportunity to say no, it’s the law. However, he can challenge whether that $150,000 is fair market value.

Public Use and Other Uses of Eminent Domain

When you hear the term, public use think of infrastructure like highways, major pipelines, railroads, etc.

There are some other more unique circumstances where eminent domain can be used, though. For instance, all real estate in Centralia, Pennsylvania, was claimed by the state government under eminent domain in 1992. It was claimed due to the city’s dangerous environment having constant fires from a mining accident.

What is Condemnation?

Definition: The procedure used by a public or private entity with the powers granted from eminent domain to take privately owned real estate.

Try not to confuse condemnation with a property being “condemned.” That is when a building is legally unfit for a human to live in, typically due to safety measures. This comes into play if a building is not up to code or has some zoning violations; however, the definitive difference is the government does not take the title of the property, it just forbids anyone from living there until the homeowner fixes the problem.

What is the Difference Between Eminent Domain and Condemnation?

Condemnation and eminent domain are almost the same things. The only difference is one is the right while the other is the action to do that right. Or in other words, eminent domain is the right which grants the government to take privately owned land from someone while condemnation is the action of taking that land.

What is Inverse Condemnation?

Definition: The event in which the government takes private property but fails to pay compensation or just compensation.

Remember earlier in our example when I told you Mr. Johnson could challenge whether what he received for his home was the fair market value? Well, that’s inverse condemnation. A property owner can sue to obtain the required just compensation through the process of inverse condemnation.

What to Know for the Real Estate Exam

While understanding condemnation and even inverse condemnation are essential for your real estate career, understanding eminent domain is vital for exam day. Most importantly, you have to distinguish what eminent domain is and understand when it is happening. An example of what you might see on exam day is a question describing a situation where the government comes in and takes someone’s land for public use. You have to know that is an instance of eminent domain.

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Escheat

Escheat is the government’s right to take ownership of unclaimed real estate or assets. Escheat is a government power granted by the constitution, and part of the reason it’s critical to have a will, but more on that later.

What is Escheat?

Definition: The governments right to take ownership of unclaimed real estate or assets.

So what does that mean? Well, when a property owner dies and leaves no proper documented inheritance plan, the property ownership reverts to the government. That is escheat. Escheat ensures that property always has ownership.

Escheat is part of the reason it’s critical to have a will, or when you are purchasing property, you establish an explicit right to survivorship.

The good news is that certain property that is escheated may later be reclaimed. Obviously, it depends on the instance, and the state, but recovering property is possible in some circumstances.

Escheat Example

Here is a quick and easy example.

Imagine an elderly man in a nursing home. He has no family and is suffering from Alzheimer’s. Because of his Alzheimers, he doesn’t remember much. Eventually, he passes away in his sleep. There is no will for the man, and again he has no family. So what happens to the money left in his savings account or his old farm that has been left untouched since he entered the nursing home?

Instead of being handed down to his family(since he has none), his assets (farm included) are going to go to the government in the process called escheat.

As sad as this example may be, it’s a process that must be defined and established just in case matters like that happen.

What to Know for the Real Estate Exam

Well, as you know, in the United States, every state is different, and escheat is no expectation. Each state has different rules and regulations governing escheat and how it functions. It’s super important to understand how your state operates when it comes to escheat.

Understanding the basics of escheat is critical for exam day. An example of what you might see on exam day is a question describing a situation where someone passes away, doesn’t have any heirs or family, and it’ll ask you what happens next? Obviously, the correct answer would be escheat.