What are a the types of property deeds?
Some of the types of property deeds are:
- Warranty Deed
- Security Deed
- Trust Deed or Deed of Trust
- Quit claim deed
- Tax Deed
The warranty deed is when the seller says he has clear title to the property and can sell it to the buyer. This has guarantees that the deed has no defects in the title. A defect is when ownership of the property is either not clear or someone has a lien on it. A mortgage is a lien.
Deeds that are not clear could be property held by an estate trust with multiple inheritors. Each of these inheritors has to be found and their interest in the property handled. They can be paid for their share or sign a quit claim deed, explained below.
Other liens could be a second mortgage or a workman’s lien for work done that was not paid. Other liens are also possible.
Of the types of property deeds, this is the most common kind of deed. It’s what most mortgages use. A security deed means the property is used for collateral to secure the loan.
You get a mortgage. You use the house as collateral. The bank loans you the money. If you don’t make the payments, the bank takes the house through foreclosure.
TRUST DEED or DEED OF TRUST
This kind of deed typically has three parties involved: the bank, the buyer and a trustee. The legal title to the property is given to the trustee. The equitable title goes to the person borrowing the money. The property is the collateral for the loan.
The person with the legal title is the actual owner of the property. This trustee has full access rights and power of attorney over the property.
The equitable title holder takes the legal title when the sale is completed. That could be at closing. In that case, the bank would take legal title. This is the most common. At this point, the trust deed usually converts to a security deed. The legal title could transfer when the loan is paid off. The borrower then gets the legal title.
The quit claim deed is used to transfer property from one owner to another or for a person or entity to legally establish no claim to a property with no money exchanging hands. Some research erroneously says the quit claim is done with no research, title search or survey. Actually, all this can be done. A quit claim deed can also be done without any title check.
A quit claim deed is recognized as legal by courts, however, there are some things about it you need to understand before pursuing one.
Here are a few examples of how a quit claim deed functions and what it is as it may relate to the general public.
PRIVATE TO GOVERNMENT TRANSFER
A common reason for this is taxes. A property owner uses a quit claim deed to hand property to local government board. The owner then gets a tax deduction. Why would a property owner do this? Several reasons come to immediate mind. The owner has no interest in maintaining the property any more. The owner can’t find a buyer. The owner wants to create a legacy, like a municipal park. The property cannot be developed in any way, think wetlands, and the owner is tired of paying property taxes on it.
A quit claim deed common in divorce. This title change is best done when the marriage is ended on friendly terms. If the separation is hostile, then a warranty deed or a court order is highly recommended. Where two married people are concerned, the deed removes one spouse from the title. IMPORTANT NOTE: This does not remove a spouse from a joint mortgage. As long as the two people are listed on the loan paperwork, they are still both responsible for the mortgage. Removing a person from a mortgage requires an order from a judge.
Frequently parents will transfer property to children with a quit claim deed. Siblings can use the same process to move property back and forth. This kind of transfer is not limited to family members. Two adjoining property owners can agree to transfer property this way.
However, a quit claim deed, as noted above, doesn’t resolve all outstanding liens on property.
PROBLEMS WITH A QUIT CLAIM DEED
A major problem with a quit claim deed is when it is not approved by all parties.
In Central Arizona, two neighbors shared a patch of oleander plants. Neighbor one wanted the plants and the land under them. Neighbor two signed a quit claim deed handing that property over to neighbor one. However, neighbor two also had a mortgage on the property. It went to foreclosure. Because the mortgage company never approved the quit claim deed, that paperwork was set aside in the foreclosure process. Neighbor one did not get to keep the tiny bit of land after all.
The quit claim deed does not set aside a mortgage. In fact, it could make things worse if you are trying to get out from under a payment. If the mortgage has a due-on-sale clause, the balance of the loan could be due immediately. Even if there’s no due-on-sale clause, the person handing over the property on the quit claim deed is still responsible for the payments.
In other words, if you quit claim property with a mortgage, you are still responsible for that loan. If the payments are not made, the bank is coming after you, not the other person. Because of this, you need to get the lender to approve a mortgage transfer as part of the quit claim deed. That transfers payment responsibility to the other person.
There’s no guarantee that will happen. Some mortgage companies won’t approve a mortgage transfer unless the property is actually sold. Some lenders will only do it to someone with good credit. Ask before you move ahead with a quit claim deed.
IN ADDITION TO A WARRANTY DEED
A quit claim deed may accompany a warranty deed. Briefly, a warranty deed is one that states the property title has been researched. No liens or other owners of record are found on the deed. If other owners are found, a quit claim may be used to end their interest in the property before the warranty deed is issued.
Here’s an example. A title search company researches a piece of property. They find the owner of record. They also find another person who may have some claim to the property. This is called a defect. The title company then approaches the second person to ask for a quit claim deed. The other person signs paperwork giving up all interest in the property. This clears the title defect for the warranty deed and is included in the transaction paperwork.
Future sales of the property will make a note of this quit claim deed.
The reasons to sign a quit claim deed to give up property are pretty well listed in all the above. Just remember that the paperwork means you and your inheritors are giving up all rights to the property, unless you later buy the property or another quit claim deed hands it back to you.
Of the types of property deeds, a quit claim deed sometimes offers the least amount of legal protection a property deed can have. There’s no guarantee that other people are giving up their claim on the property. This is particularly troublesome in dealing with property held by an estate trust. All the people who inherit under the estate must agree to the quit claim for the title to be clear. Finding all these people can be a major chore.
At the same time, a quit claim can be as good as warranty deed, but only if the title is clear. When you apply for a mortgage, the mortgage company requires a title search. Because a title search and more is not required for a quit claim, it’s not as secure as a warranty deed. If all the title search work that goes into a conventional mortgage also goes into the quit claim deed, it can be a very secure deed to the property.
A tax deed is issued by a local government, usually a county, when tax defaulted property is transferred to a new owner. It is similar in legal standing to a quit claim deed. This transfer can be a result of a tax deed or tax foreclosure sale where a tax defaulted property is sold, usually at auction, to any buyer with the funds to pay for it.
A second common way to obtain a tax deed is, after a tax lien certificate is sold by a local government to pay for past due taxes and the taxes remain unpaid for a statutory period of a year or two. The tax lien certificate buyer can be issued a tax deed to the property and become the new owner for only the price paid to pay the past due taxes. That means anyone can end up owning property for only the cost of the back taxes, literally for pennies on the dollar.
If you would like more detailed information about tax defaulted property investments and various types of property deeds, there is a free Tax Lien Certificate and Tax Deed Training Course on my website: www.TedThomas.com.
All reasonable efforts have been made to ensure the accuracy of the information presented in this article. Laws and regulations may change and you must be knowledgeable in the current laws and regulations at any tax defaulted property auction. Website links may also have changed since this article was written.