Deeds

Although the process of real estate negotiation is necessarily centered on the sales contract and how it is written, deeds are a critically important aspect of each transaction and should not be overlooked.

What is a deed? A deed is a legal document that shows who owns a given property and what type of ownership they have, describes the property, and references what restrictions and covenants, if any, have been recorded concerning the property.

Historically deeds were anything but bland legal documents. Deeds in the Middle Ages were precious pieces of parchment, expertly styled and often bearing unique seals and marks to show their authenticity. Some deeds, in fact, were single sheets of parchment that recorded title information twice, after which the parchment was torn in half, very deliberately, so that two complete copies of the deed were created. If there was a question about the authenticity of a deed-or when title was transferred-the two halves could be brought together to see if they matched, thus guarding against falsified deeds.

A deed today is nothing more (or less) than a device to convey property ownership, something that shows who does the conveying-the grantor, or seller-and who gets the property, the grantee, or buyer. There are five basic requirements to have a valid deed.

First, as with contracts generally, all parties must be legally "competent," an expression which means of legal age and of sound mind. Legal age is the "age of majority" in the state where the transaction is taking place, traditionally 21 but now 18 in most jurisdictions.

Being of "sound mind" means the individual signing the deed has an awareness of what he or she is doing. Problems such as alcohol and drug abuse or a history of mental instability can raise competency questions.

Second, there must be a statement of consideration. A deed in most cases will specify the dollar value paid for the property.

Third, there must be a description of the property showing, for example, the lot, block, and subdivision of a house located in an urban area. A description of the land is an essential feature of a deed, information that must be carefully verified and recorded. Numerous lawsuits have arisen because land descriptions were faulty, insufficient, or simply unclear. A description of the property may be very dry and uninteresting, but the accuracy and reliability of this description is essential to the validity of a deed.

Fourth, the deed must be signed by the seller.

Fifth, there must be delivery and acceptance.

"Delivery" refers to a statement or indication of intention on the part of the seller to pass the property over to the buyer and thereby relinquish his rights. This may require more than a mere signing of the deed. For example, a seller could sign the deed and keep it in a safe place while considering whether to go through with the transaction. If the intended purchaser then made off with the deed, despite the existence of a signed document, there would be no sale because there was no delivery-the seller did not state his intention to transfer the property and, therefore, did not "deliver" the deed.

On the other hand, the seller may say nothing and yet delivery would be complete. The seller's presence at settlement and his signing the deed in the presence of the buyer, coupled with his failure to object to the buyer taking title, would indicate his intention to transfer the property.

A delivery can also be contingent on some event, and if that event occurs, delivery is then complete.

In addition to a delivery, there must also be "acceptance"-some indication or statement by the buyer that the transaction is satisfactory. Acceptance here need not mean that the buyer is waiving any rights that he may have if there are problems with the deed or with the warranties in the deed, or if there are any other complications with the transaction. It simply means that there has been consent to a transaction by the buyer and that the property is now his.

All deeds must meet the five basic requirements above, but not all deeds are identical. Some deeds include many "warranties," or promises of good title by the seller, while others offer virtually no guarantees to the purchaser.

In general terms there are three types of warranty deeds. The strongest level of assurance comes with a general warranty; less meaningful is a special warranty deed; and finally there is a quitclaim deed, which offers no assurance of ownership at all.

A "general" warranty is the most extensive guarantee that can accompany a deed. A general warranty says that title to the property is good and valid, that the property is free and clear of all encumbrances and liens except as noted in the deed, and that the seller guarantees title back to the first time an ownership interest in the property was created-back to pre-revolutionary times in some cases.

In contrast to a general warranty, a "special" warranty deed says the seller's title is good and valid but subject to any liens or encumbrances that might be outstanding at the time of settlement. No warranties are made, however, about title prior to the time the seller bought the property, so the seller's responsibility for providing good title is limited. This type of warranty requires a careful check of the land records to determine if there are any difficulties with the title or any encumbrances that were unknown or undisclosed by the seller at settlement.

The final form of warranty is, in fact, little or no warranty at all. A "quitclaim" deed says that the seller is giving a deed to the property without any guarantees, not even a guarantee that he has good title. A quitclaim deed says only that a seller is willing to transfer any interest that he or she has in the land-whatever that interest may be. It is entirely possible that the seller has no valid or legal title to the property. Even so, this is not an illegal transaction, so long as the buyer understands the limitations of a quitclaim deed and the considerable risk that he or she is taking.

Both buyers and sellers will want to make every effort through their attorneys or the party conducting settlement to assure that the deed is correctly drafted. Accuracy at the time a deed is written will do much to prevent complex and costly title challenges in the future.

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