An uninsured deed affidavit is used when someone receives a property without consideration by a deed that is recorded but not insured by a title company.
The title company will require that the seller (or the current owner who acquired the property with an uninsured deed) signs an uninsured deed affidavit in front of a public notary to ensure that the property was not given under duress or fraudulently.
As there are a lot of forgeries these days, the title company must be extra careful when issuing title insurance.
This is where an insured deed affidavit comes in.
In this blog, we’ll discuss what an uninsured deed is and how you should proceed if you encounter a situation with one.
1. What is an uninsured deed?
An uninsured deed is a deed that hasn’t be examined by the title company.
In some states, such a deed may need to be examined by the title company before any buyer can obtain title insurance.
The title company will do a complete background search of recorded liens or disputes that have been filed on the property and also ask that the grantor sign an uninsured deed affidavit.
The aim is to ensure that the current owner can transfer ownership of the property to a new owner without any obstacles.
2. When do uninsured deeds happen?
Uninsured deeds often occur when someone adds or removes family members or spouses to/from a property’s title without consideration through a quitclaim deed.
The deed is uninsured because it didn’t take place inside a transaction that’s insured by a title company.
When this process is done incorrectly, it can trigger the requirement for an uninsured deed affidavit depending on the state, length of time since recording and title company.
This is why it’s important to make sure that deeds are handled properly.
3. As an agent, should you be concerned about uninsured deeds when taking a listing?
Yes, you should consider whether an uninsured deed is a possibility.
Here are a few scenarios when they can occur.
If a deed was signed under stress/duress
An uninsured deed often happens when someone gets a divorce and their attorney drafts and records a new deed.
Title companies still need to verify that the grantor actually intended to grant the property to the grantee.
Thus, the uninsured deed affidavit.
Just keep in mind that obtaining the affidavit can get tricky if the person is out of state or hard to reach.
4. How can you identify an uninsured deed?
If you think there’s a chance that you’re dealing with an uninsured deed, look for the following signs:
Check for an accommodation stamp on the deed
See if there’s a title company listed or a title company order number
Find the escrow number on the document
Look for a document stamp that shows under the fee section
Identify whether the document was handwritten
Consider whether there was a documentary transfer tax (if no documentary transfer tax, then no consideration)
If you’re not able to find the above, then you may have an uninsured deed on your hands.
The next step after this is to reach out to your title company.
They can help you to identify any potential problems and eliminate unnecessary hurdles during the selling process.
5. What is an affidavit?
An affidavit is a sworn statement that’s made in front of a notary or other officer authorized to administer oaths.
An affidavit of deed confirms delivery and acceptance of a deed by the grantee and thereby its validity.
It’s a useful document because most states only require the grantor’s signature on a deed.
6. What does an uninsured deed affidavit protect you from?
Most states don’t require the grantee’s signature on a deed, and thus the grantor may find it difficult to prove delivery and acceptance.
When you have an uninsured deed affidavit, grantors in a transaction can verify the date of the completed conveyance.
This protects them from future claims or questions when applying for Medicaid or other asset-based benefit programs.
7. What’s an example of an uninsured deed affidavit?
To see an example of an uninsured deed affidavit, visit the following links:
Both links show an example of this document in the State of California.
8. What’s the role of title insurance in real estate transactions?
We’ve talked a lot about deeds being “uninsured” throughout this post.
Title insurance is essential in real estate transactions, but why?
Title insurance is a special type of insurance that protects the insured from financial loss relating to problems with the title to real estate.
These title problems include the following:
The transferor didn’t own the property that he or she conveyed to the new owner
The transferor owned the property at one time but has already conveyed some or all the property to another new owner
There are unpaid mortgages or other liens against the property that gives creditors a right to seize the property in a foreclosure proceeding
There are unpaid property tax liens or other tax-related encumbrances that give tax authorities or tax lien purchasers the right to foreclose against the property
There are gaps in the prior chain of title such as deceased owners whose estates have been admitted to probate
If an issue arises in any of the above circumstances and a lawsuit occurs, the title insurance company will defend the lawsuit.
If they lose, then they will also pay claims related to the lawsuit.
If parties do not have title insurance, then they could only look to each other to resolve any legal liabilities.
Thus, this insurance allows both the buyer and the seller to shift the risk of loss to the insurance company.
Title insurance matters because it impacts the value of the property.
When a title is not insurable, it can’t be sold for full market value.
A buyer would first need to bring legal action to remove any title issues.
This is known as clearing title.
Unless a title is insured, no reasonable buyer will pay full price for the property, so it’s in the seller’s best interest to go through this process.
9. What are the requirements to get title insurance?
The requirements for title insurance vary depending on the title insurance company you work with.
Each company has its own underwriting guidelines, which will differ from state to state.
The company will only issue policies on transactions that meet these underwriting guidelines.
Keep in mind that the title insurance company’s underwriting guidelines are almost as important as the legal requirements of the state law because you need your title to be insurable.
For example, even if a certain type of deed is valid under state law, you wouldn’t want to proceed with it if your title insurance company won’t issue a policy on that deed.
Not every title company has the same underwriting guidelines regarding uninsured deed affidavits, so be sure to check with a local title company before buying or selling land.
10. What is a quitclaim deed?
A quitclaim deed is a fast way to transfer property to a buyer.
However, unlike general or special warranty deeds, there are no protections for the buyer when you use a quitclaim deed.
You can use a quitclaim deed to do any of the following tasks:
Transfer property to or from a revocable living trust
Transfer property to one spouse as part of a divorce
Transfer one co-owner’s interests to another co-owner
Transfer property you own by yourself into co-ownership with someone else
Change the way that owners hold property
11. Should you use a quitclaim deed to transfer your title?
No, while quitclaim deeds are popular, they are often not the best option.
This is because a quitclaim deed doesn’t say whether or not the person conveying title owns the property.
The grantor offers no “guarantees” as to their interest in the property or the condition of the title.
So, when you use a quitclaim deed, you take on quite a bit of risk.
You may think, “Well, I’m not sure I have an option because the title isn’t ‘free and clear’ of liens.”
What other option do I have?”
However, depending on the state, there may be other types of deeds that do not say that the title is free and clear either.
Furthermore, you should know that title companies aren’t fans of quitclaim deeds without additional documentation.
In fact, many title examiners won’t accept them because they don’t guarantee anything.
So, you’ll want to avoid using a quitclaim deed just because it’s quick.
You’re better off using a deed like the Special Warranty Deed.
Just keep in mind that even this kind of deed may not remove the requirement to obtain an uninsured deed affidavit if a transaction is not completed through a title company.
12. What is consideration in real estate?
Consideration is the legal term that describes the value that changes hands as part of an agreement between two or more parties.
Consideration evaluates the benefits to each party.
It could be the payment of money, the discharge of debt, the performance of services, or anything else of value.
Real estate can be transferred with or without consideration.
When real estate is sold to a third party, the contract will require that the buyer pays a certain amount as consideration to the seller.
The contract will also require the seller to sign and deliver a deed as consideration to the buyer.
This exchange in which the buyer pays the sales price and the seller signs/delivers the deed constitutes the mutual consideration for the real estate contract.
13. What is a “no consideration” deed?
“No consideration” deeds occur when a property is transferred without money exchanging hands.
Here are some of the situations when a “no consideration” deed is appropriate:
Transfer between husband and wife
Transfer between an individual and a revocable trust
Transfer between a personal representative of an estate and beneficiaries of an estate
Transfer from individuals into an LLC
Transfer from LLC to individuals
Transfer from parents to children
Transfer from children to parents
Transfer pursuant to a divorce decree or settlement agreement
Transfer pursuant to a termination of a domestic partnership
Transfer between domestic partners
Inter-familiar transfers (grandparents to grandchildren, sisters to brothers, etc.)
Transfer pursuant to a termination of a partnership or corporation
In these situations, it’s important to check with your county or city recorder about the tax requirements as not all no consideration deeds are exempt from transfer and recordation taxes.
Additionally, if there’s any indication that it could be an uninsured deed due to this transfer, you should work with your title company to get it resolved.
Having an uninsured deed can cause a lot of problems for you as a property owner because it affects the value of your property.
For this reason, you need to go through the process of getting an uninsured deed affidavit to verify the property was transferred under the correct circumstances.
After this has been done, you should be able to get title insurance.
Additional ResourcesIf you are looking to buy affordable land, you can check out our Listings page. And before you buy land, make sure you check out Gokce Land Due Diligence Program. If you are looking to sell land, visit our page on how to Sell Your Land.
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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.