The purchase of a new home requires learning all about various aspects of homeownership (financial, legal, and practical) that can be overwhelming to a first-time homebuyer and homeowner. As part of our ongoing All About series, LGI Homes seeks to provide an easy-to-read and easy-to-understand resource that goes in-depth on a variety of subjects connected to buying a home. Today, we explore the world of deeds, and how these vital legal documents will play into your experience of buying a home.
What is a deed and who is mentioned in it?
A deed is a formal legal instrument that conveys, in the case of buying a home, an interest in the property in question. In essence, the deed transfers ownership of a property from one person (or group) to another. The grantor is the person or group selling the property, while the grantee is the person purchasing the property. The deed is typically “recorded” by local government (usually at the county level), and information regarding the sale is generally public record.
What kinds of deeds are there?
There are two main kinds of deeds: grant deeds and warranty deeds. Grant deeds (common in some states) outline the transfer of property from one owner to another, and are witnessed by notaries to affirm that the seller is the actual owner of the property in question. Grant deeds certify that the seller currently owns the property, and that there are no external claims on the property (or “title” to the property)—from, for instance, a lien or an outstanding mortgage—that have not been disclosed to the buyer.
Warranty deeds are essentially like grant deeds, with one major exception: with warranty deeds, the seller offers an additional “warranty” against any future claims to the property by a third party. The seller also promises to do everything necessary to convey proper title to the property to the buyer. Services like title searches (meant to root out possible problems or issues with clear title) and title insurance (insurance against financial loss due to third-party claims) are generally associated with warranty deeds.
A third type of deed, known as a “quitclaim” is not so much a true deed as it is a resignation of ownership from one party to another. Divorce and/or dissolution of partnerships are a common instance in which quitclaims are used to cede all ownership on behalf of one spouse or partner, to the other.
I’ve also heard about “trust deeds.” Are these the same as grant and warranty deeds?
Not exactly. Trust deeds are actually a form of “mortgage,” in that they are publicly-recorded legal documents that stipulate the ownership of a property that was purchased with a home loan. In the case of trust deeds, a neutral third-party (often a title company) holds a property “in trust” as collateral toward repayment of a lender’s loan. Once the borrower repays the loan in full, ownership is transferred from the trust company to the borrower, removing all impediments to clear title ownership (these impediments are known as “encumbrances”). Should the borrower fail to comply with the terms of the loan, the trust deed allows the trustee to sell the home in order to repay the lender their due amount.
Will I see any of these documents at the closing?
Typically, the seller will sign the property deed at the closing, and you, as the buyer, will receive a copy. Because it is such an important document, some buyers choose to have a title company store the deed for them, usually for a monthly or annual fee. Trust deeds will be read and signed by borrowers if they are using trust deeds instead of a mortgage.