Imagine this: You just bought your first home. You’ve moved in and made the place your own, and you’re starting to really embrace homeownership. Just as you’re finally feeling settled, you get a knock on the door. When you open it, you find a stranger claiming they’re the rightful owner of your property — all because they hold the deed to it.
While this situation isn’t a common one, it highlights the importance of deeds in property ownership. In the above scenario, your ability to stay in your home depends on the validity of your deed to the property. Deeds remove any doubt about ownership, and when you’re buying or selling real estate, you need to ensure that your deed is legally sound and properly recorded. To help you learn about the importance of deeds, we’re sharing the basics, including what they do and how to draft them.
What Is the Purpose of a Deed?
A deed is a public legal record of the sale of a property. It removes all ownership rights from the seller and transfers them to the buyer. Once you record a deed with your local register of deeds office, all debtors — and anyone else who may have an interest in the property — know that there’s a new owner.
The core purpose of a deed is to protect the rightful owner of the property from anyone else who claims to own it. Transferring a deed is also known as transferring the title to a property. Like the title of a car, holding the title of a property gives you legal ownership rights.
How to Choose a Deed Type
Most states recognize three different types of deeds for real estate. These are quitclaim deeds, warranty deeds and special purpose deeds.
A warranty deed can be general or limited. General warranty deeds offer the greatest amount of protection for the buyer because the seller agrees to a set of legal covenants. One of them is the covenant against encumbrances. An encumbrance happens when a debtor, such as a mortgage lender or contractor, has a claim to the property because the property is collateral in an unpaid loan. This legal covenant certifies that the seller gives the buyer title to a property free of encumbrances.
In a limited warranty deed, there are no covenants. The seller simply agrees that they don’t know of any other ownership claims against the property. Most lawyers and real estate professionals insist upon general warranty deeds for clients they represent.
A quitclaim deed transfers ownership without any guarantees about the title. The buyer has less protection with these types of deeds, so they’re not as common in business transactions. Rather, they’re often used when gifting property to family or “getting property out of your name” in a divorce. Special purpose deeds are drafted at the direction of a judge when the transfer of property is part of the resolution of a court case.
What Are the Different Types of Property Ownership?
A deed identifies the buyer(s) of a property and the type of ownership they’ll take. One buyer often takes what’s called “fee simple” ownership of the property. This means they have complete ownership of the land. If multiple people own the property together, they can choose to be tenants in common or to take tenancy by the entirety.
With tenancy in common, if the property is ever sold, all joint tenants must agree in writing to the sale because they all have an equal interest in the property. Spouses usually take this type of tenancy.
Without expressly stating otherwise in the deed, property owned by more than one person often defaults to tenancy by the entirety. A key difference between tenancy in common and tenancy by the entirety is the right of survivorship. Tenancy in common usually has survivorship rights, meaning if one of the property owners dies, ownership automatically transfers to the surviving owner(s). Without this written provision, the legal heirs of the deceased property owner could become additional joint tenants.
If you’re buying a property with a spouse or business partner, it’s wise to consult an attorney about the type of ownership you need to include on your deed. For couples, this is especially important if one or both partners have children with previous partners.
The Process of Drafting a Deed
If an attorney or another real estate closing professional handles the sale of your property, you probably won’t need to think about writing your own deed. If you and another private individual handle the deed transfer on your own, however, you may decide to draft your own deed. Usually, this responsibility falls on the seller. However, even if you’re the buyer, you need to ensure that the deed is accurate and legally sound.
Research to be sure the deed you use has all the necessary elements for legal recognition in the state where the property is located. You can find deed templates online. In some counties, the local county deed registrar may even make deed templates available to the public.
A deed must identify both the buyer and seller by their full legal names, and the seller must sign it. It also includes a legal description of the property, often referencing plat maps or GPS coordinates in addition to the street address. In your state, there may also be standards regarding the size of the paper, the color of the ink and the size of the margins on the page.
A deed also has to include clear language that it’s a deed for the sale of property. The deed must clearly state the type of property ownership it gives and the type of deed it is. If it’s a general warranty deed, it must list out the specific covenants of that deed type. For peace of mind, you may want to have a lawyer or property professional review the deed before you sign it to ensure it includes all necessary information.
How to Notarize a Deed
If a mortgage lender is involved in the sale of the property, an important step often happens before the deed is signed and notarized. Lenders often insist that an attorney perform a title search on the property. This process determines whether the seller has the legal right to sell the property.
Because deeds are important legal documents, they need to be notarized. A notary is a trained professional who verifies the identities of all parties signing a contract or document. The notary needs to witness the seller signing the deed, and the notary stamps the deed with their unique seal. Many banks and law offices have employees who are licensed notaries.
Once you have the deed notarized, it must be recorded at the registrar of deeds office in the county where the property is located. All interested parties then have legal notice that there’s a new property owner from that point forward.