When you think of buying and selling property, you’re probably familiar with the terms “title” and “deed.”
Do you use them interchangeably?
If you do, you wouldn’t be the only one.
Although these terms are not synonymous, they are closely linked, and you should be highly familiar with how they’ll impact the buying process.
In this blog, we’ll run through the things you should know about the differences between a title and a deed.
Let’s get started.
1. A title refers to the legal ownership of a property and the rights that come with it
A title proves legal ownership of a certain asset – land, home, car, etc.
However, unlike a deed, a property title isn’t a physical document.
It is a concept and is conveyed through property deeds.
If you have a valid deed, your title’s bundle of rights will include the following.
The right of control:
You’ll be able to use the property in the lawful manner you choose.
Keep in mind that the right of control isn’t absolute.
If there are covenants or restrictions in place that limit the allowable uses (such as a homeowner’s association CCRs or local zoning restrictions), you must abide by them even if you have clear title.
The right of disposition:
You’ll be able to permanently or temporarily transfer ownership of the property as long as there are no loans, liens, or other encumbrances.
The right of enjoyment:
You’ll be able to enjoy the property in any lawful manner (this is different than the right of control).
The long and short of this is that you must follow all laws while on your property.
The right of exclusion:
You have the right to choose who is allowed on the property.
This is usually an absolute right in that you are typically allowed to restrict access to your property as you see fit.
However, if there is an easement on your property (such as an access or utility easement), the easement holder will have the right to access your property as allowed under the terms of the easement.
The right of possession:
You have the legal right to claim ownership of the property.
Title may also (but not always) convey mineral rights, water rights or other special kinds of rights.
2. A deed is a physical document that conveys the title
A deed is a document that proves ownership and is used to transfer property from the seller to the buyer.
For deeds to be considered legal, valid, and enforceable, they must contain the following components:
Identification of both grantor(s) and grantee(s)
Expression of the grantor’s desire to convey the property to the grantee
An accurate legal description of the property
The signature of the grantor(s)
So, in essence, the deed is the document that transfers title from one owner to the next.
Because the deed conveys rights, it’s important to resolve any outstanding issues before the property is legally transferred to you.
This way, you can enjoy your new property without fear of future complications.
3. There isn’t just one kind of deed
There isn’t a one-size-fits-all deed for every situation.
Instead, there are a few main types of deeds.
We’ll walk you through the ones you should know.
General Warranty Deed:
This type of deed is most often used in traditional home sales.
It provides the most protection for people buying your home.
It means that the seller is guaranteeing the property is free and clear of any issues.
It also says that your guarantee, as the seller, covers the life of the property (not just the period you owned it) and that you will defend the title against other people who may claim to have an ownership interest in it.
Special Warranty Deed:
This deed is similar to the General Warranty Deed above.
However, it only promises a clear title for the time that you, as the seller, have owned the property.
This type of deed is generally used in commercial real estate transactions.
You may also hear it called a Covenant Deed.
This deed shows that you have a clear title to sell and no knowledge of anything that may impact the title.
However, it does not include the warranty that will defend the title against other people who may end up having claims to it after the sale occurs.
This deed offers the least amount of protection for a buyer of your home.
It’s typically used when a property owner gifts property to someone else.
It’ll transfer rights and ownership to the buyer without any guarantee that the seller is actually able to do so.
Even if the seller is not able to legally sell the lot, the buyer wouldn’t be able to take any recourse against the seller.
Bargain and Sale Deed:
If your property is sold in a tax sale or a foreclosure, then it may be sold with a Bargain and Sale Deed.
This occurs when the seller doesn’t need to clear the title, and there are no protections for the buyer.
The buyer will be responsible for cleaning everything up after the fact (even if there are liens or other outstanding encumbrances).
4. You should also understand the abstract of title
The title is a concept rather than a document (that’s where the deed comes in).
That said, material facts related to a property’s title may be documented in the form of an abstract.
Think of it as a summary report of what is found in the public record.
It helps you track your property’s legal history and past chain of ownership.
The abstract of title often includes a summary of the original grant, subsequent changes in ownership, and any encumbrances on the property.
The person who prepares the abstract of title will also include a statement that the abstract is complete and accurate.
While it’s important to know that the abstract of title exists, most property owners will just keep it on hand.
It’s often a thick stack of paperwork that will be stored in a filing cabinet “just in case.”
5. When purchasing a property, it is your responsibility (as the buyer) to find evidence of title
Finding evidence of title means that you can show the seller is able to convey with a marketable title.
This is usually done by means of a title search.
A title search will trace the chain of title back through the public record.
The goal of this process is to find out if any defects exist.
After all, if the seller of the property cannot provide a marketable title, then your contract (as the buyer) should become void and your deposit should be returned without penalty depending on the details of your purchase agreement.
During this process, you, your real estate attorney or title company should look beyond recorded documents like deeds, utility easements, mineral leases, or mortgages.
You should also look into certain types of liens that may not be recorded (i.e. real estate taxes, inheritance taxes, etc.).
Be careful because a title search may also overlook other issues, such as encumbrances, on the seller’s ownership that were not recorded.
6. Title insurance can protect you from title defects
Title insurance protects buyers from any hidden or unknown title defects.
You’ll purchase it for a one-time cost prior to the property sale.
In most cases, lenders will require you to have it to protect their interests.
Title insurance is unique because – instead of protecting against future events – it protects against past events that could impact your real estate title.
Here are some events that could affect your title.
Ownership or disputed ownership by another party
Judgements against the property (lawsuits or liens)
Forgery or fraud
Unresolved building code violations
Title insurance comes in “standard” and “extended” coverages.
As you would expect, “extended coverage” offers more protection.
You may want to ask your lawyer which type to purchase.
If the seller has title insurance, then it should indicate to you that the title was good enough for insurance purposes when the seller purchased the property.
Then, get a quote from the insurer who issued the seller’s property.
In most cases, it’ll be the cheapest premium.
7. An owner’s policy is different from a lender’s policy
If you are buying a property with a mortgage, your lender will likely require that you purchase title insurance.
However, despite what you may think, the title insurance policy that the bank will request does not protect you as the buyer.
A Lender’s Policy is issued for the amount of the mortgage and will only protect the lender (not you) from financial damages if a title issue shows up after purchase.
So, if you want to protect your interest in the property, you will also need to purchase an Owner’s Policy (for an additional fee).
This policy will protect you, as the owner, from previous title defects for the length of your ownership regardless of the status of your mortgage.
The good news is that in some states the seller pays for the Owner’s Policy.
8. You should be aware of any title exceptions
If you purchase title insurance, you need to be aware of any “title exceptions,” which are specific items not covered by the policy.
Unfortunately, not all title defects are insurable.
So, you should be aware of all title exceptions because they will be excluded from coverage.
And the presence of a title exception can often mean that something isn’t right with the title.
These exceptions will indicate that the seller wants to sell the property and transfer the problem to a new owner.
Don’t fall for it!
When it comes to deed vs. title, both are highly important in the real estate process.
The two terms are closely connected, but different in practice.
A title is a concept that refers to the ownership of a property.
Titles are transferred by a deed, which is the physical legal document that is given from the seller to the buyer.
It will be signed by the person selling the property rights.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.