4 Differences Between a Deed and Title:
- A deed is a legal document; a title describes a legal position of ownership.
- A deed is a means of transferring interest; a title is a legal right to use something.
- A deed must be captured in writing; a title is an abstract concept.
- A deed represents a right to claim something; a title is owned by the ultimate owner.
These differences between “title” and “deed” are in the very meaning of the words, what they express, and what they represent. In summary, a title indicates ownership of something—whether it’s real estate, a vehicle, or a business—while a deed is a legal vehicle comprised in writing and validated by preordained procedures (such as witness signatures) that facilitates the transfer of ownership.
In some cases, a deed does not even transfer the entire title. For example, a property owner can issue a deed granting partial ownership of their property to another party.
What is a Deed?
A deed is a legal document. According to the statute of frauds, this legal document must be captured in writing, signed, and witnessed. There are several categories of deeds, some of which might surprise you—but keep in mind that a deed is a document conveying a title.
A conveyance is the transfer of real property (real estate). A license is a type of deed granting permission to do something—whether that’s driving, hunting, or doing electrical work. A patent is a deed granting the creator of intellectual property to exclude others from benefiting from it without the creator’s permission. Even a college diploma is a type of deed granting the title of a particular degree upon the recipient. Power of attorney (POA) arrangements can also be executed as deeds, granting a legal representative the right to act on behalf of someone else.
All of these documents are types of deeds. When it comes to deeds of conveyance—those types of deeds that pertain to buying and selling land or property—there are several types of deeds: warranty deeds, bargain and sale deeds, quitclaim deeds, and deeds of trust. The differences between these various types of deeds of conveyance are defined by the degree to which the issuer of the deed is granting title to the recipient (for instance, with or without certain limitations or conditions). These various types of deeds of conveyance will be discussed in more detail when we cover how ownership of property is transferred.
What is a Title?
A title grants the possessor of the title the right to do something, such as enjoying the use of their property. Titles can be full or partial, but the owner of a title can access land and modify it as they will. One of the rights guaranteed by the title is the right to dispose of the property as the title holder sees fit—such as transferring the title to another person with a deed. It’s important to know that if you’re taking out a mortgage to finance your purchase of property, the lender will hold the title until it’s paid off. In some states, there are only two parties to this agreement: the lender and the borrower. In other states, the lender appoints a third party to hold a deed of trust on their behalf.
When it comes to real property, there are several ways of expressing the title, which is important to consider. The way your title is structured will have serious ramifications for tax purposes and in the event of an inheritance.
Tenancy by the entirety is for married couples, with each spouse granted an undivided interest in the property, and a right of survivorship that passes to the remaining spouse in the event of death; additionally, individual creditors for each spouse cannot attach a lien to their jointly-owned real property. Keep in mind that not every state has tenancy by the entirety in regard to homeownership.
Joint tenancy is similar to tenancy by the entirety, but it does not require the joint owners to be married. Moreover, a partner of a joint tenancy can sell their share of interest in the property—however, they cannot force their partner to sell their share without a lawsuit. Joint tenancy also carries rights of survivorship in that, if one partner dies, their share will pass on to the other owner.
Tenancy in common is like joint tenancy, but the owners do not have rights of survivorship—in the event that a partner dies, ownership will transfer to the owner’s heirs (either as expressed in their will or as defined by the state) and will not transfer to the surviving partner. Moreover, partners of a tenancy in common may not necessarily own equal shares in the property.
Sole ownership, of course, grants you the total and complete right to use the property as you see fit. At the same time, it means that your real property can become subject to a lien from a creditor.
It’s important to consider how your title will be structured for personal reasons. If the property in question is an investment property, you will most likely want to conduct business under the name of a legally separate entity, and that includes all the paperwork. This, of course, will require setting up an LLC.
4 Differences Between a Deed and a Title
Let’s take a closer look at the differences between a deed and a title.
A deed is a legal document; a title describes a legal position of ownership.
A deed should be written on stamp paper and divided into paragraphs that provide material information. A deed should also say clearly on the document that it is a deed. The deed must be stamped, signed by the grantor, confirmed with witnesses, and delivered to the grantee (the recipient of the deed). Exact practices will vary from state to state, but in all states, a deed is a formal and binding document that expresses a transfer of the title. The title, on the other hand, describes an owner’s legal right to possess a particular asset. It is not a document, but rather a description of their legal position in relation to a piece of property.
A deed is a means of transferring interest; a title is a legal right to use something.
“Interest” in this case means the right to enjoy the use of property. This right cannot be transferred with a mere wink and a nod, because such a casual arrangement is not enforceable and can result in a legal quagmire. A deed that is “signed, sealed, and delivered” is a concrete way to establish a lawful process of transferring property. Once the deed has allowed the grantor to transfer title to the grantee, the new titleholder can use the property as they see fit, while the former titleholder relinquishes their rights of enjoyment and usage.
A deed must be captured in writing; a title is an abstract concept.
There are many types of deeds—degrees, licenses, patents, and conveyances of property—but all are documented forms of legal writing. In times past, transfer of property was affected by something called a livery of seisin, where property was transferred by handing over a clump of dirt, or verbally declaring a transfer, after which the recipient stepped onto the land. While these abstract practices worked in ancient times, by the Middle Ages governing bodies were already switching to written charters. Capturing transfer of ownership in writing is a much better vehicle for preventing disputes before they begin, rather than relying on an abstract concept like ownership.
A deed represents a right to claim something; a title is owned by the ultimate owner.
It is possible to hold the title to some property without possessing a deed. In fact, if you have been living on family-owned property that was passed down through generations, you may not be in possession of a deed (though your local government might have something on file).
In most states, a deed must be filed with the county recorder, court, or assessor to make it legally binding. A deed that has not been filed in such a way is said to be “not perfected.” While this doesn’t affect the transfer of title, it does mean that there can be problems down the road, especially if the grantee eventually wants to sell the property they’ve just received. A future buyer will only be able to acquire property from someone who holds a “perfect title”—that is, a title unencumbered by claims, heirs, or human error.
How Do I Take Ownership of a Property?
In the United States, property buyers are looking to secure estate as a “fee simple,” which derives from the word “fief” or domain. Fee simple is noted in writing with a property deed—but keep in mind that there are many types of property deeds. The property deed that will concern most readers is the one that involves homeownership.
Most homes are bought and sold using something called a general warranty deed (in the UK, this is often called a transfer deed). This deed was created to protect both members of the transaction and minimize legal complications. It contains four main parts, or covenants. The covenant of seisin means that the grantor guarantees they actually own the property and can legally transfer it to the grantee. The covenant against encumbrances guarantees the property is free from any liens or encumbrances unless they are specifically stated (an example might include a public pathway that goes through a property or a utility line). The covenant of quiet enjoyment guarantees that the grantee will enjoy the use of the property without facing claims against their title. A covenant of further assurance is the grantor’s promise to deliver any necessary documentation.
As you can see, a general warranty deed is a fairly all-encompassing document. This, of course, is to limit legal problems, which would quickly multiply and burden the local government with extensive disputes, which in times past, could even result in violence. Note, however, that some states only require a grant deed, which is similar to a warranty deed, but without a covenant that the grantor will defend the grantee against third-party claims.
According to Medieval legend, a Saxon merchant was once given a pile of dirt as payment, which he eagerly accepted. The Saxon people then invaded the country of the purchaser, claiming the pile of dirt had affected a livery of seisin. As you can see, transfer of property has evolved in terms of legal scaffolding over the years—a general warranty deed is meant to affect a clean transfer of title, relying on a legal title captured in writing instead of symbolic gestures.
There are other types of deeds. A bargain and sale deed states that the grantor can hand over the property but cannot guarantee against encumbrances. This type of deed might be used by court officials seizing a property with unpaid taxes. Another type of deed used in these or similar occasions would be a limited warranty deed. This deed guarantees that the grantor holds legal title over the estate but makes no guarantee about what happened before.
For example, some investors focus on acquiring bank-owned properties that were acquired by the lender in a short sale (a sort of mutual arrangement between the homeowner and the bank), or auctioned properties that went to sale after a tax deed or lien was ignored. These investors will want to buy a title insurance policy in case the title ends up being questionable or unsalvageable due to numerous encumbrances. If there are any issues, the investor’s losses will be rectified through the insurance policy.
A quitclaim deed transfers interest in real property, but without any guarantees, not only against encumbrances but also without any promise that the grantor actually owns the property and can legally transfer it; hence it is also called a non-warranty deed. Because the primary function of a quitclaim deed is to help the grantor relinquish their hold of the title, a quitclaim deed is sometimes used to rectify any existing deeds that are questionable in nature, and redraft deeds that facilitate a perfectly clean title. Sometimes, this process of securing a title is called an “action to quiet title.”
Bargain and sale deeds and quitclaim deeds will most likely not be used in any transactions you come across, unless you are a real estate investor who flips distressed homes or acquires severely discounted properties from tax sales. If that’s the case, you’ll want to learn a few other things about real estate investing for beginners as well. Alternatively, you might be looking to solidify your ownership (in writing) of a family property that has been passed down through generations, which a quitclaim deed could help facilitate.
If you’re buying a property, you will first have to work out a deal with the seller. This is often facilitated with the help of an experienced real estate agent, who often specializes in the area and is familiar with the price of comparable properties in the area. A building inspection, negotiations, and a down payment are all part of this process, as is applying for a mortgage—which can take months.
In some cases, after months of waiting, the bank will still not approve the potential homebuyer for a mortgage, which can be very frustrating. Thankfully there are alternative arrangements, such as seller financing. Some investors forego mortgages altogether and buy homes for cash, although this is rare.
Before getting ready to close the deal, it’s important that a title search is performed on the property. This search will go back over the history of the particular parcel of land and establish a chain of title—that is, a history of estate ownership. It’s important to establish this history and get a certificate of title obtained for the grantee (seller) so that no surprise encumbrances, claimants, or inheritors can threaten to repossess the estate after its transfer. In most cases, once a homebuying consumer has negotiated a deal with the help of their agent, it’s time to close. The deed is at the heart of the closure. The grantee will want to take serious consideration into how their title will be structured: Will it be a joint tenancy, tenancy in common, or sole ownership? As mentioned, each of these options will have serious ramifications in terms of taxes, liability to creditors, and inheritance.
The deed will also include some material information like the parcel number of the property as stated by the assessor’s office and the amount of transfer tax owed. In some states, first-time homebuyers will be awarded special conditions regarding this transfer tax. There will be other concerns to list, such as how the current year’s property taxes will be split between the grantor and the grantee. A deed will also contain a legal description of the property. This description could be drawn from a block and lot survey called legal plat, or even a metes and bounds description, which uses physical landmarks. Again, because the deed is the legal document at the heart of this transfer of property, it must include all these material details.
The deed must be prepared in front of a notary, then filed with the county recorder. If you are the grantor and you sign the deed in front of a notary, you do not necessarily have to deliver the deed in person to the grantee, though this may be different in your state. If the deed is affecting a transfer between family members, you will also want to file a Reassessment Exclusion Claim to prevent a property tax reassessment—which in most cases, would mean higher taxes.
Keep in mind that you won’t get to hold on to the deed if you’re the grantee…at least, it’s most likely you won’t, as most homebuyers finance their home with a mortgage. As it turns out, after that whole process, the bank (or lender) will hold the deed. In some states, they will issue a deed of trust, which is held by a third party. If you want to know in which states deeds of trust are issued, or any other ins and outs of the home buying process, it’s a good idea to talk to a professional advisor or lawyer.
Mortgage debt is also secured with a promissory note, which is held by the bank or company issuing the home loan. This promissory note is a sort of IOU that defines the terms of the mortgage—the names of the borrowers, the property, the interest rate, the amount of the loan, the number of years to pay it off, and any appropriate late charges or penalties. Some mortgage policies contain more than the actual mortgage. For example, a PITI mortgage is a lump sum that contains the principal, interest, taxes, and insurance. It’s always an excellent idea to insure anything valuable that you own, but many lenders will require you to insure your property anyway because they have a vested interest in it should you default on your mortgage debt.
Once your mortgage is paid off, the bank will turn over the deed to you, which will necessitate more paperwork. If your property taxes were paid from an escrow account while you made mortgage payments, you must notify your state’s tax assessor that the property is now in your possession. Otherwise, you could risk defaulting on your taxes and trigger a foreclosure process. Once your mortgage is paid off, you will own the deed and title to your property.
If you are buying properties under an LLC for investment purposes, this will change the way a deed is drafted and recorded. Make sure a competent legal advisor is on your team to help you navigate every transaction and avoid serious complications—such as liens, encumbrances, and claims that can come out of nowhere and make an entire project fall through. You should also consider setting up a land trust, which is a great vehicle for limiting liability and reducing your tax burden. Typically, this requires the help of a legally competent real estate asset management team to serve as the trustee that manages the trust.
Understanding the Differences Between a Deed and Title
The most important thing to remember is that a title is an abstract concept of ownership, which could be jeopardized if a perfected deed is not put into place (that is, a deed with all the requisite paperwork and recording). A deed, on the other hand, is an actual contract that must follow specific requirements and procedures. It’s the center of a transaction and at the core of transferring ownership from the grantor to the grantee.
In certain situations, some deeds will require additional legal counsel, such as an executor’s deed used to transfer title in the event of death, an interspousal transfer deed used to transfer title in the event of divorce, or a deed in lieu, which is a type of arrangement in lieu of foreclosure.
Understanding that deed and title are not synonymous can help avoid confusion during the sale of a property—which is already a very complex and paperwork-heavy process. If you’re an investor, the deed and the paperwork surrounding the deed becomes even more complex. By hiring an experienced attorney, you can avoid many of the pitfalls and legal issues that arise during a property sale.
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