Everything You Want to Know About Property Deeds When Buying a Home
House hunting? By now, you may have noticed that some listings include “deed restrictions” or list a certain type of property deed. While seemingly nondescript, this document can have crucial implications on the property and the sale itself. Before you make an offer, it’s a good idea to start familiarizing yourself with the ins-and-outs of property deeds.
The Basics: What are Property Deeds?
A property deed is the legal instrument or document used to convey (transfer) ownership of a specific property from one party to another. Essentially, it is the legal equivalent of a seller handing over the keys.
Every property deed is comprised of three essential parts:
- A written legal description of the real estate being conveyed
- The names of the respective parties/individuals involved
- The signature of the grantor (seller) transferring the property
A deed may sometimes include the signature(s) of the grantee(s) (buyer) receiving the property, but it’s not always required. Deeds are also often confused with their counterpart – the title. While related, property deeds and titles are two very distinct legal documents. A property title declares a person’s right to a specific piece of real estate, whereas a deed provides for the actual transfer of the property/title from one party to another.
The Details: Are All Property Deeds the Same?
No. Like any transaction, a property deed can take many forms. The primary difference between each type of deed is generally what a seller can, or is willing to, guarantee in regard to the property’s title. The most common types of deeds include:
General Warranty Deeds
Although the most standard, general warranty deeds also offer the most protection to the buyer. The seller is assuring the buyer that they own the property free and clear, and therefore have the right to transfer the property. Should any future issues arise with the title or claims to the property be made, the seller would be liable and financially responsible for settling the matter and reimbursing the buyer should any losses result from the claim.
Special Warranty Deeds
Special warranty deeds differ from general warranty deeds in that the seller is only offering to protect the buyer from an encumbrance against the property should it have occurred during their time of ownership. This means the seller is not liable for any claims against the property made prior to their possession of the property. A seller may choose this type of property deed if they are sure no defects to the title arose while they owned the property, but cannot guarantee anything about the property’s previous owners or those owners’ rights to the property.
As suggested by its name, grant deeds, like warranty deeds, do grant certain guarantees to the buyer. However, they do not protect a buyer from defects in the property’s title. In this case, the seller is promising only that they have not previously sold the property, and have disclosed the existence of all current liens or encumbrances on the property.
Quitclaim Deeds (or Non-Warranty Deeds)
In simple terms, a quitclaim deed or non-warranty deed is the opposite of a general warranty deed. While general warranty deeds provide the highest level of protection to the buyer, quitclaim deeds offer the least amount of buyer protection. The seller or grantor in this case is simply releasing, or “quitting claim,” to their interest in the property, and unlike with other deeds, does not guarantee the quality of the title to the grantee. This form of property deed is usually riskier and is, therefore, often used only to transfer property between known parties or to fix a defect in the property’s title.
Special Purpose Deeds
Special purpose deeds are used in specific circumstances, which require legal proceedings or involve a third-party acting on the behalf of an owner or estate to convey the property in question. For example, a fiduciary deed may be used when a property’s current owner is deceased or incapacitated, and unable to grant the property deed. Instead, a “fiduciary” or individual legally appointed to make decisions for the owner, will sign the deed on the owner’s behalf. Other special purpose deeds include, but are not limited to: deeds of trust, executor’s deeds, tax deeds, and deeds in lieu of foreclosure.
Deed restrictions or restrictive covenants can be part of any deed – placing limits on what can be built on and/or how a property can be used. Deed restrictions are most commonly seen with properties belonging to condo or homeowner’s associations in order to protect the common value of the property. However, they are not exclusive to HOA’s, and can be found with any property.
A restrictive covenant may be attached to a property deed by a neighborhood association, a local township, the home’s developers, and even a previous owner. Deed restrictions can include any number of limitations, but the most frequently included are covenants on:
- The use of the home as business
- The number of dwellings or adjacent structures allowed on the property, such as sheds, garages, workshops, etc.
- The height and size of a building or the construction of anything that may obstruct or impede a neighbor’s view
- The number of bedrooms or bathrooms allowed
- The type and number of vehicles, such as RV’s, boats, and trailers, allowed in the driveway or in front of the house
- The style, color, and materials used in a renovation, like fencing, paint colors, and other exterior finishes
- The number, type, and breed of animals living on the property
The Fine Print: Why Do You Care?
The nuances of property deeds may be subtle, but their impact can be huge. The type of deed being offered by a seller can influence anything from the value, sale, or financing of a home. For instance, while the primary differences between a general warranty and special warranty deed may seem small, they can have critical consequences. A buyer considering a property with a special warranty deed, would not only be left unprotected from any title issues predating the seller’s ownership, but it may also make financing the purchase or receiving a mortgage more difficult. Some mortgage lenders may have deed conditions, and many require title insurance to help protect their financial interest. During the home buying process, you may also need to take additional steps, like conducting a title examination to search for any defects or encumbrances in the property’s history.
Identifying possible deed restrictions on a property is also a crucial part of the home buying process. Before signing a contract, it’s important to check for any restrictive covenants to ensure your vision of your dream home is possible. You don’t want to be stuck with a home you can’t fix to meet your needs.
If you’re on the market for a new home, you don’t have to go it alone. Working with advisors, like HOMEteam, can help you transition to home ownership with confidence!