The Closing and Real Property Deeds
General Warranty Deed:
Special Warranty Deed:
The transfer of real property, whether it is in the form of a gift or a sale, must be accomplished by the transfer of a written instrument that represents ownership of the property. This instrument is known as a “deed”. In a buy-sell real estate transaction, the transfer of the deed from the buyer to seller is known as the “closing”. Although the buyer already owned equitable title to the property, as discussed in the previous chapter, formal legal title to the property is conveyed to the buyer through the delivery of the deed at the closing.
Elements of a Deed
1. Granting Clause: The “granting clause” lists the transferor (the seller in a buy-sell transaction) and the transferee (the buyer in a buy-sell transaction) and a statement to the effect that the transferor is transferring the land to the transferee. The granting clause usually lists the consideration that the transferee is paying for the land, however, this is not a necessary part of the deed. Consideration is not necessary to complete a transfer of property. Consideration is usually mentioned simply to allow the transferee to attain the status of “bona-fide purchaser” which is important to protect against the repossession of the land later on. However, a deed without any consideration listed is still fully binding.
Both parties to the transaction must be listed in the granting clause. It is not necessary that the deed list the parties by name. A description that leaves no doubt as to the identity of the party is sufficient. For example:
Bill and Hillary have one daughter, Chelsea. Al, a friend of Bill and Hillary’s wants to sell Chelsea a piece of property. If Al gives Chelsea a deed to the property, the deed must either name Chelsea as the buyer or describe her in a way that makes it clear that she is the recipient. If the deed says that the buyer is the only daughter of Bill and Hillary, that is a sufficient description of Chelsea to validate the deed.
2. Description of the Property: For a deed to be effective, it must describe the property that it purports to convey. This means that the deed must contain information necessary to clearly and precisely identify the parcel that is being conveyed. It is okay if certain outside evidence is required to figure out exactly which parcel is being conveyed. For example:
Homer conveys Whiteacre to Bart. In the deed, Whiteacre is described as “the premises located at the address 150 Robin Lane.” The city and state are left off. If Homer and Bart both live in Springfield, Illinois and Homer owns property at 150 Robin Lane, Springfield, Illinois,” then the deed will not be defective simply because the city and state have been left out. It is clear from the deed and the surrounding circumstances which property Homer meant to convey with the deed.
If, however, there is nothing unclear or ambiguous in the deed, outside evidence will not be allowed to prove what the parties meant. For example:
Homer conveys Whiteacre to Bart. In the deed, Whiteacre is described as “the premises located at the address 150 Robin Lane, Springfield, Massachusetts.” Even if Homer and Bart both live in Springfield, Illinois and Homer owns property at 150 Robin Lane, Springfield, Illinois,” the deed will not be effective in conveying the Illinois property to Bart. External evidence will only be allowed to clarify a deed if it appears from the face of the deed that it requires clarification.
The property that a deed purports to convey can also be described using survey markers (markers placed there for the purpose of delineating property boundaries), by natural or artificial monuments (eg. “from this pole to that tree…”), by reference to maps, by courses of direction and distances (e.g., “from the pole, running East-Northeast at a 74 degree angle for 123 feet" etc.) or even by common name (e.g., “the estate known as Maple Run”) or by quantity (“40 acres of land between the Rivers Styx and Lethe"). Essentially, any description that would allow people to understand which property is being referred to by the deed will be sufficient to cause the deed to be effective.
Of course, the deed needs to be complete in its description. If a deed gives a northern boundary, but not a southern boundary and it is not obvious what the southern boundary is, the deed may be void for incompleteness. As a practical matter, deeds that are used these days describe the property in detail, using several of the above methods.
Delivery of the Deed
A deed is not effective in transferring land from the buyer to the seller until it has been delivered from the grantor to the grantee. The deed must be delivered to the grantee with the specific intent to give title over to the grantee. If the grantor gives the grantee the deed without the intent of passing title to the land over to the grantee, then the delivery is not effective. For example:
Fred and Barney have signed a contract that states that Barney will buy Fred’s house for $500,000. Barney comes over to Fred’s house to finalize the details and to receive the deed. Fred is holding a deed to the property and he tells Barney he will give the deed to Barney the next day, after Fred has had a chance to review the deed with his attorney. While Fred and Barney are talking, Fred’s wife, Wilma, comes home carrying some heavy packages. Fred goes to help Wilma with the packages but before he does so, he gives the deed to Barney to hold while he goes to help Wilma. In this case, although Fred has physically given the deed over to Barney, and although he is contractually bound to give the house to Barney, he did not intend to transfer title to the land when he gave the deed. Therefore, this delivery of the deed is ineffective.
If a deed is written and then (1) notarized by a notary public and (2) then given by the owner of the property to another person, and (3) that person records the deed in the County Property Records Office, then courts will presume that the delivery was made with the intent to transfer the property. In other words, if these three elements are met, the grantor has the burden to prove that he or she did not properly deliver the deed if he or she wants to keep ownership of the property. However, if the grantor keeps possession of the deed, then courts will presume that there was no delivery unless proven otherwise by the grantee.
As with any gift transfer, the delivery is only effective at the time that it is actually delivered into the possession of the grantee. Also like any other transfer, it is only effective if the grantor is alive at the time of the delivery. If the grantor sends a messenger to deliver the deed to the grantee and then the grantor dies before the delivery is actually made to the grantee, then the transfer is ineffective.
Delivery must be made while both parties are alive. However, also as with other gift transfers, if the messenger is an agent of the grantee, then delivery is effective as soon as the deed is given to the grantee’s agent. For purposes of this rule, a person who holds a deed in escrow (as is often done, pending the delivery of the purchase money to the grantor) is considered to be an agent of the grantee. Thus, if the grantor gives the deed to the escrow agent and then dies, the escrow agent can give the deed to the grantee.
Warranties of Title
In the previous subchapter, we discussed the contractual obligation that the seller has to convey marketable title. It is important to note that this contractual requirement to convey marketable title ends with the delivery of the deed. When the deed is delivered, if it does not deliver “marketable” title, then the buyer has the option of refusing the deed and insisting that the seller convey title that is marketable or face a suit for breach of contract. However, once the buyer does accept the deed, all contractual obligations to deliver marketable title cease to be effective. This is based on the very logical idea that a buyer should not be able to “have his cake and eat it too” by accepting the seller’s title and later turning around and saying that the title that was delivered was no good. This rule is known as the “merger” rule because any promises that come with the contract of sale “merge” with the deed and are no longer effective once the deed is delivered. For example:
Seller and Buyer agree that Seller will sell Whiteacre to buyer for $100,000. The chain of title to Whiteacre reads “… 1972: Al sold Whiteacre to Bob; 1980: Bob sold Whiteacre to Christine; 1990: Dan sold Whiteacre to Seller.” Seller’s title in Whiteacre is not marketable, because there is a missing link between Christine’s ownership and Dan’s ownership. Still, if Buyer does take Seller’s deed and three years later, Christine sues seller for a return of the property, Buyer has no breach of contract action against Seller. As we will see shortly, however, in all likelihood, Seller has breached his warranty to Buyer.
Although the delivery of the deed ends the contractual duty to deliver marketable title, the deed itself generally conveys a warranty that the title that the seller is giving to the buyer is good title (ie. free from defects or encumbrances, as we discussed in the last subchapter). There are three categories of deeds, based on the level and scope of this warranty:
1. The Quitclaim Deed: The “quitclaim deed” is the worst type of deed because it conveys no warranty whatsoever that the seller’s title is good title or that there are no encumbrances on the property. By giving a quitclaim deed, the transferor is, in essence, saying “here is whatever interest I have in the property.” If it turns out that the seller had no interest in the property, then the buyer obviously ends up with nothing, and the seller has no liability to the buyer for anything. For example:
John gives Joan a quitclaim deed in which he conveys to her “The Brooklyn Bridge, the island of Manhattan and the states of Idaho, Missouri and Kansas.” John (surprise!) does not hold title to any of these parcels of real estate. Joan obviously receives nothing because John is powerless to convey what he does not own. In addition, John has no liability to Joan for conveying property that he did not own.
Obviously, a buyer should be extremely careful before agreeing to accept a quitclaim deed. If the seller’s title turns out to be faulty, the buyer will have no remedy against the seller. Quitclaim deeds almost always come with steep discounts in the purchase price because of the enormous risk that the buyer is taking.
2. The General Warranty Deed: On the opposite side of the spectrum from the quitclaim deed is the general warranty deed. The grantor of a general warranty deed makes five specific guarantees by the granting of the general warranty deed. These guarantees are sometimes known as “covenants” because they are part of the agreement between the grantor and the grantee.
- Seisin: The first covenant is the covenant of seisin, in which the grantor guarantees that he or she owns the land that is being conveyed to the grantee. (Note: The term “seisin” is an ancient term that means the taking of legal possession of land.)
- Right to Convey: The second covenant is the covenant of right to convey. The grantor covenants (promises) that he or she has the power and authority to sell or give over the property to the grantee.
- Lack of Encumbrances: The third covenant is the covenant against encumbrances. The grantor promises that there are no easements, mortgages, liens, or any other encumbrances on the property.
- Quiet Enjoyment/ Covenant of Warranty: The grantor also promises that he or she will defend against a third party’s claims of superior title. In other words, if the grantee is sued by someone who claims to have had title to the land that was superior to the grantor’s title, then the grantor will help the grantee defend against the lawsuit. In addition, the grantor promises that he or she will compensate the grantee if the third party successfully takes title to the land (or any portion of the title to the land) against the grantee.
- Further Assurances: The grantor promises to do whatever is necessary to perfect the conveyed title if it turns out that the grantor’s title was imperfect. If, for example, it turns out that there was a mortgage on the property at the time it was transferred, the grantor promises that he or she will pay off the mortgage so as to perfect the title of the grantee.
3. The Special Warranty Deed: The special warranty deed is what is used by the seller when the seller is confident that he or she owns the property, and is being honest about the conveyance, but is not so confident about the previous owners of the property. In this type of deed, therefore, the seller makes the same warranties as in the general warranty deed, but only makes those guarantees with respect to defects in title that arose during the time that the grantor had possession of the property. The grantor makes no warranty as to defects that arose before the property came into the possession of the grantor. For example:
- Brian conveys Tanneracre to Lynn. Three years later, Alf brings an action against Lynn. Alf claims that while the property was in the possession of Willy, Alf bought the property from Willy and that he has a contract to prove it. Alf claims that Willy breached that contract and later gave the property to Brian. Alf succeeds in his lawsuit and is able to evict Lynn and take the property. The question of whether Brian is liable to Lynn for Lynn’s loss depends on what type of deed Brian used to convey the property to Lynn. If Brian used a quitclaim deed, of course, he has no liability to Lynn. If he used a general warranty deed, then Brian would be liable to Lynn for the damage she suffered as a result of Alf’s repossession because the covenants of seisin, right to convey and quiet enjoyment were all violated by Alf’s action against Lynn. However, if Brian used only a special warranty deed to convey Tanneracre to Lynn, Brian would escape any liability. This is because the defect (in this case, Willy’s conveyance of Tanneracre to Alf) arose before Brian came into ownership of Tanneracre. Therefore, Brian’s warranty to Lynn does not cover this defect.
- Brian conveys Tanneracre to Lynn. Three years later, Alf brings an action against Lynn. Alf claims that while the property was in the possession of Brian, Brian sold Tanneracre to Alf. Alf claims that Brian breached the contract and conveyed Tanneracre to Lynn instead. In this case, even a special warranty deed would subject Brian to liability to Lynn for any damage she suffers as a result of Alf’s suit. The defect arose while Brian owned Tanneracre, and so even a special warranty deed would cover that defect. The only type of deed that would not cover this defect would be a quitclaim deed.
If a deed does not specifically mention what type of deed it is, it is presumed to be a general warranty deed.
If the seller violates any of the warranties that are conveyed with a deed, the buyer generally has a choice. He or she can rescind the contract and get the purchase price back, or, the buyer can keep the property and sue the seller for damages caused by the breach of the covenant. For example: