People often pay little attention to the instruments by which they convey or acquire real estate. This can be cause for concern, considering the value of the asset being transferred.
Property is transferred in most of the country by deeds. Deeds, when recorded, are merely evidence of title. This is in contrast to the title certificate for your automobile, which is the title itself and confirms title in the person named in the certificate. A recorded deed, on the other hand, may show Ms. Jones as the owner of property when, in fact, the person who signed and gave the deed was not the owner or at least not the owner of all of the property referenced in the deed. In that case, the deed would be wrong or misleading evidence and Ms. Jones would be disappointed, to say the least.
The best way to avoid this risk is to have the title searched by an experienced lawyer or title examiner and to have the results of the search insured by a title insurance company. Your real estate lawyer will review the commitment for the insurance and help you decide whether any of the exceptions to title listed in the commitment, such as easements, liens, reservations and other exceptions, might interfere with the way you plan to use the property. It is important that your purchase agreement be clear about your right to terminate the agreement if the condition of title is not to your liking.
The several types of deeds available to transfer the property can be a source of confusion. Most deeds include warranties of one type or another with respect to the condition of title. A general warranty deed warrants that the seller has the right to sell you the property (free from all encumbrances such as easements or reservations except for those named in the deed) and that the seller will defend you against all lawful claims and demands of all persons. So, even if the exception to title occurred many years before the seller acquired the property, the seller will still be liable to you for any valid, prior claim of a third party. This is good for the buyer, but not so good for the seller. Ironically for the seller, if the title examiner misses an exception to title and the seller gives a general warranty deed that does not specify the exception, the title company can step into the shoes of the buyer and sue the seller for breach of the general warranty covenants. General warranty deeds continue to be used in most residential transactions.
The preferred deed in commercial transactions is a limited, or special, warranty deed. It should also be the preferred deed, at least for the seller, in a residential transaction. The warranty of title given by the seller in a limited or special warranty deed is limited to the lawful claims and demands of persons claiming by, through or under the guarantee. In other words, the seller only warrants with respect to those matters that arose under his or her watch. The protection in this form of deed is not as strong for the buyer but, from a practical standpoint, the title insurance obtained by the buyer should provide the buyer with adequate protection.
The third type of deed is the quitclaim deed, which only purports to transfer to the buyer whatever rights the seller may have in the property, without any warranty of title. This deed is often used to transfer interests among joint owners or family members where no warranty of title is necessary or appropriate.An additional form of deed is the fiduciary deed. It is used to transfer real property out of trusts and estates. No warranty of title is included in the deed since the trustee or executor is generally not in a position to give a warranty of title. The only warranty in a fiduciary deed is that the fiduciary is duly appointed, qualified and acting in the fiduciary capacity described in the deed.