“How will the title be conveyed?”
This is a critical question you should ask every time you buy a piece of land. But there are a TON of options for title transfer, and knowing which one is appropriate is paramount for your land purchase. But before we get into title and types of deeds, let’s talk about the why.
Why do we care about title? What is it? Title is the legal ownership of real estate, land, vehicle, or other item. To have title is to have legal right to the item in question. So how do deeds tie into all this? Deeds are the documents that transfer the title from one person or entity to another. I will explain each of the major types of deeds, gives pros and cons for each, and at the end I’ll give my personal philosophy on deeds and title transfer. Excuse some of the “Legalese” to follow; it’s important to give the real definitions but I’ll also explain as simply as possible because I found all this to be a bit confusing at first.
- General Warranty Deed. The most common of warranty deeds. This deed guarantees that the owner has the legal right to convey the title, that it comes without any sort of liens or encumbrances, that nobody has a higher claim to the title, and guarantees the seller will make fix any title issues in the future. It provides the best assurances a buyer can receive. But not all sellers are willing to transfer via this deed. Maybe they received the deed in a different manner. Perhaps there is a cloud on the title from the 1950s via a divorce settlement. Because of these concerns, many sellers elect to transfer title via different deeds
- Special Warranty Deed. It is similar to a general warranty deed, but with one key difference. The special warranty deed guarantees only the time period in which the owner had title to the land. This means if there’s a title issue outside that timeframe he or she is not responsible for it. A lot of sellers like this type of title, but it does increase your risk slightly as the buyer. I’ll get more into it later, but many times, this type of deed is completely appropriate! If there is a clear chain of title, then you don’t have to be worried about other issues. Additionally, you should be checking for liens anyway so you won’t need that guarantee.
- Quitclaim deed. This is an extremely popular type of deed as well, especially in Arizona. This type of deed remises (a fancy work for gives away) claim to the title of the land to another person. This type of deed is very popular among family members, or to transfer title from a person to their business entity. Once again, if there’s a clear chain of title, this is an appropriate method of transferring title, but it has the least protection of the three listed so far.
- Bargain and Sale Deed. This is kind of a hybrid of a warranty and a quitclaim deed. It guarantees title, but doesn’t guarantee no liens or encumbrances. Banks and foreclosures are the places where you’ll mostly find these types of deeds.
- Deed of Trust. In a deed of trust there are three parties; the buyer, the seller, and the trustee. The trustee holds the title for the deed of trust until the property is paid off. Everything else is pretty much the same.
- Mortgage Deed. Just the seller and the buyer, who split title for the home, but the buyer controls sale unless in default. This is the basic deed/situation for the average homeowner today.
So what does this all mean? If you can get a clear chain of title, then the world is your oyster. Because even if you get the title on a warranty deed, and then an issue arises in the future, you’d have to prove the issue exists, and then sue the previous seller to have them resolve the issue. This is a long, expensive, and painful process. Just because you get a general warranty deed doesn’t mean you are protected, it just means eventually somebody else will have to pay some money. So you absolutely have to do your due diligence! Make sure you check that title chain and call the county. I actually provide a chain of title to all my buyers to help them feel more confident in the purchase. Best of luck and do that due diligence!