If you’re an investor, it’s important to understand the different types of real estate deeds and titles, especially if you are planning to do your own title search. In this article, I’ll explain what you need to know about estates, deeds, and titles.
An estate determines the legally recognized interest a person has in real property. There are two main types of estates: freehold and nonfreehold.
Freehold Estate
Freehold estate is an estate in which a person has ownership of land for an indefinite period of time. The most common type of freehold estates are fee simple absolute, fee simple defeasible and life estates.
Fee simple absolute is an absolute interest in the property with no conditions or limitations except for government restrictions. The owner has the right to use, possess, and dispose of the property as they see fit.
Fee simple defeasible is an interest in land that may be lost under certain conditions, such as if the owner uses it for a different purpose than specified in the deed.
A life estate is an estate that lasts for the duration of a person’s life . The owner has the right to use and possess the property for their lifetime, but after they die, the property goes to the designated beneficiary.
Nonfreehold Estate
Nonfreehold estate is an estate that lasts for a specific period of time or is subject to certain conditions. These types of estates are also referred to as leaseholds.
The Deed
A deed is a legal document that transfers ownership of real property from one person to another. The grantor is the person who transfers the property, and the grantee is the person who receives the property.
The Deed is proof that a person has title to the property. It includes the names of the grantor and grantee, a description of the property, and is signed by the grantor.
Types of Deeds
The most commonly used type of deeds that real estate investors encounter are:
Warranty Deed: A deed in which the grantor guarantees that they have good title to the property and that there are no encumbrances on the property.
Special Warranty Deed: A deed in which the grantor only guarantees that they have not done anything to damage the title of the property.
Bargain and Sale Deed: A deed in which the grantor does not guarantee that they have good title to the property, but are selling it “as is.”
Quitclaim Deed: A deed in which the grantor transfers any interest they have in the property, but makes no guarantees about the quality of their title.
Deed of Trust: A deed in which the grantor transfers ownership of the property to a trustee, who holds it as security for a loan.
Sheriff’s Deed: A deed that transfers property, is sold at public auction to satisfy a judgment or a mortgage.
Tax Deed: A deed in which the grantor conveys property to a governmental entity because of unpaid taxes.
What Elements Must be in the Deed:
- Parties: The deed must identify the grantor and grantee.
- Property: The deed must describe the property being transferred. This can be done by referencing a plat map or by providing a legal description of the property.
- Consideration: The deed must state the consideration, or price, that is being paid for the property.
- Granting clause
- Restrictions
- The deed must contain a habendum clause, which states the type of estate that is being conveyed.
- Signatures: The deed must be signed by the grantor in front of a witness.
How People Take Title to a Property
Joint Tenancy: Two or more people own an undivided interest in the property and have the right of survivorship, meaning that if one owner dies, their interest in the property goes to the surviving owner.
Tenancy in Common: Two or more people own separate interests in a property with no right of survivorship. This means that if one owner dies, their interest in the property does not go to the surviving owner, but passes on according to their will.
Community Property: Property that is owned by a married couple or registered domestic partners. In community property states, if one owner dies, their interest in the property goes to the surviving owner.
Tenancy by the Entirety: Property that is owned by a married couple as joint tenants with the right of survivorship. If one owner dies, their interest in the property goes to the surviving owner.
Partnership: Property that is owned by two or more people as partners in a business.
Homestead Laws
Some states have homestead laws that protect a certain amount of equity in a person’s home from creditors. These laws vary from state to state, so it’s important to check the homestead laws in your state.
As you can see, there are many different types of real estate estates, deeds, and titles. It is important to understand the difference between them so you can become a better informed real estate investor.