Warning Why You Should Care About Deeds As A Real Estate Investor
Why should you care about deeds, and what is it essential to learn about them?
Looking back and some of the videos that I created, I realized that there wasn’t much that I shared with you in terms of closing. I wanted to take a minute today and talk about a crucial component or something that you should pay close attention to at the time of closing and that it’s a deed. You might probably wonder what an act is and how it differs from a title. Let’s take a step back and understand the differences between the two.
A title is a legal document that states the ownership. It demonstrates that you are the owner of this one asset, in this case, the real estate property.
If you are talking about a deed, it is a document, the evidence, the transfer of ownership between one party to another. This case will be from the seller to yourself, as the buyer, or vice versa. I’m aware of five types of different deeds:
- A warranty deed
- A special warranty deed
- A quitclaim deed
- A grant deed
- A bargain sale deed
Let’s start with the most common one, the most popular one that you might have heard of out there, and that’s the warranty deeds. That’s probably the one you’ve listened to the most, from any residential properties or any closings you have done on your own. The name warranty deed comes from the warranty. It means that the seller guarantees to you that the property is free and clear of any debt or any lien throughout the life of the house.
For example, anything that engages a mortgage will require you to have a warranty deed because no bank or any lending institution will issue you a mortgage or any loan. And not knowing for sure that the property is free or clear of anyone can claim ownership from it. The most thorough review is the most comprehensive review that a title agency will do to ensure that the title is free and clear for you to purchase. It is the type of deed you will see more often here and then as soon as there’s a mortgage involved in the equation.
Special warranty deed
Now the second type of deed is called the special warranty deed. It’s very similar to the warranty deed itself, except that the seller guarantees that the property is free and clear only during that seller’s ownership period with that property. Let’s say, for example, I have a property that was billed 100 years ago, for example, but I only took over for the past ten years. Anything that happened before that, I’m not guaranteeing it. I’m only guaranteeing the ten years that I owned that property. That’s where you’re getting a special warranty deed.
You might probably wonder why someone will want to use that type of deed. It’s pretty standard on commercial investments and commercial real estate properties because the turnaround is typically high. You come in, you buy, you give it whatever use you want to use in that property, and then you exchange hands. It’s very common on that end. It provides the seller some protection saying, well, I only had this property for only ten years. Why should I be held accountable for anything that happened in the past nine, eight years? I have nothing to do with it. I haven’t any plan of being born, so why should I be held liable for it?
As a buyer, you have to do your proper due diligence to ensure that you’re getting yourself into something that it’s clean, or do your due diligence to make sure that you’re legally protected.
A deed is a document, the evidence, the transfer of ownership between one party to another.
Now, the next type of deed is the quitclaim deed. It’s called quitclaim because there’s a quick transfer of title. It offers no guarantee whatsoever. It doesn’t guarantee that the property is free and clear of any debt or any liability, or even any tax liens that the property might have.
It typically uses amongst family members or spouses that are underdoing through a divorce or, let’s say, for example, you have a property that you originally purchased under your name. Now you don’t want to have it under your name, but you want to transfer into an LLC, and you know when you bought it that you did the proper due diligence, you did the warranty deed. You made sure that the title was free and clear, and you’re just transferring the ownership from your name into an LLC. It typically involves $0, so there’s no monetary exchange.
Let’s say, for example. You have a divorcing couple that they’re just deciding who gets the house or who gets this property. What they’re doing, they’re just doing a quitclaim transfer of the right of that property. So they do that, and it takes a little less than having to do a full-blown review or a full-blown warranty deed, where you’re going to have to search through the history of the property, and it’s usually taken care of instantly.
The next type of deed is the grant deed, and a grant deed is used when there’s no mortgage involved. Let’s say, for example, I’m a seller, and you are the buyer interested in my property, and I’m willing to do seller financing. There’s no lending institution involved, no bank whatsoever. I’m the person as the seller willing to finance that deal for you. What I’m doing is with that deed, I’m only guaranteeing as the seller that the property is mine, that I can’t sell it, and it’s free of debt. However, it does not ensure that the title is free of any issues or lien.
For example, let’s say if I have a property and I’m willing to sell it to you as the investor and I’m offering seller financing, you can go ahead and buy it. I can act like my own bank. You can finance the property to the prospective buyer or investor in this case. The grant deed does that it’s guaranteeing that I am the owner of this one property and that it is free of any debt because I already paid it off, and I’m selling it now to you.
Let’s say, for example, if I didn’t take care of any of my property taxes, there’s a possibility that there’s a tax lien on it, that the county has put a lien on it because I didn’t take care of any of the property taxes itself. I still have the right to sell you the property. However, you might have to take care of those taxes on your own because, hey, as a seller, I don’t want to pay for it. If you’re going to buy it, you’re going to have to take care of everything, the entire baggage that comes along with it, and that includes any property taxes.
Bargain and sale deed
Last but not least is the bargain and sale deed. It’s typically used in court seized documents. It works very similar to a quitclaim deed because it doesn’t guarantee you any protection on anything. That’s typically the case when you’re buying properties at an auction or from the court. The quitclaim deed’s main difference is that there’s a monetary exchange in between. Again, it is not a guarantee that court seized property is free and clear of any debt or any titles or any liens that they might have on it as well.
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