If you don’t have a grant deed, a legal document transferring clear title, free of liens, you don’t have proof of ownership allowing you to borrow against the property or easily sell it to someone else. You may also be liable for previous debts.
We’ve all heard “Possession is nine-tenths of the law.” You might remember someone on the playground saying “This is my ball and I’m taking it home.” When it comes to real estate, you can’t wrap your arms around it and carry it away. You need proof of ownership.
A grant deed is a legal document indicating the seller and buyer, or grantor and grantee have transferred ownership of property from one to the other. The grantor is relinquishing their right of ownership. The title to the property is what’s transferred, yet the grant deed is the official document. Grant deeds are most common between buyer and seller when a mortgage isn’t involved, ie: a cash transaction. If a mortgage or other loan is involved, a third party retains title until the loan is paid, then title transfers to the owner.
You want to buy a house. It’s a real estate transaction. You and the seller agree on a price. You are paying in cash. How do you know they own the property? More important, how do you know the property is yours after the sale is completed? The execution of a grant deed transfers claims of ownership from the seller to the buyer.
What Is a grant deed?
A grant deed is a legal document transferring ownership from one party to another. They are referred to as the grantor and grantee. The document identifies the two parties involved and a description of the property. The deed often includes a monetary amount and related tax information. The grant deed states the title to the property is clear. Both parties sign the grant deed. It’s dated. These are often witnessed. Although it may not be required, the grant deed is important enough to get notarized.
What is a grant deed used for? What does it accomplish?
People often talk about having title to a property. “Title” is a legal concept. It can be researched. You can buy title insurance. The grant deed transfers the title. The grant deed is taken to the county offices and entered into the official records by the Recorder of Deeds or an official in a similar role. Ownership is official.
In addition to proving ownership, the buyer or grantee wants to know there are no outstanding liens against the property. This is referred to as a clear title. Generally speaking, this means the grantor confirms there are no debts or legal claims. It’s remotely possible someone could come out of the woodwork years later, with a claim relating to a previous owner from long, long ago, however, the grant deed on file with the county should list any outstanding liens. You want the transfer to go through smoothly with no liens showing on county records.
Strictly speaking, a grant need might not need to be recorded in the county records, but it would be unwise not to get this added level of protection. You’ve heard horror stories about the same property being sold multiple times to different people, each person thinking they are the rightful owner.
Other stories you’ve heard might involve someone paying to buy a property, yet not being able to produce valid proof of ownership. As the buyer, you want as much protection as you can get. A grantor deed on file with the county is an official document. It’s your proof of ownership.
Components of a Grant Deed
A grant deed is a legal document. It should contain the following:
- Names of the grantor and the grantee
- Date the document was executed.
- A complete legal description of the property including structures or additions attached to the property.
- It usually lists an amount of money, called a consideration. This can be a nominal number, not always the actual price paid.
- Are there any easements?
- Confirmation of clear title, meaning they own the property and there are no liens.
- Signatures of the grantor and grantee
The document is often witnessed and notarized. If you look in your local newspaper for real estate transfers, you will usually see the address and the parties involved. Sometimes the price is a tiny amount, like one dollar. The text in the document might read “$1.00 and other consideration.” This keeps the transaction price secret in documents accessible by the public.
Grant deeds vs. warranty deeds
We are talking about the law here. People go to law school for years. The law is complicated.
A grant deed documents the transfer of property between the seller and buyer, or grantor and grantee. But what if something goes wrong and someone makes a claim of ownership or monies owed?
A warranty deed (also called a general warranty deed) provides an additional level of protection. The grantor is willing to defend the grantee’s rights of ownership to the property if any claims arose. This can include claims made before the grantor even owned the property! Because this is a big, ongoing responsibility, title insurance is usually purchased as a level of protection.
Are there other types of deeds?
Grant deeds might be the general term for deeds transferring ownership of property, yet there are others to address specific situations. Here are the main types of deeds you should know about.
This is what most home buyers would encounter. The bank is granted title to the property, the outstanding mortgage is the lien. When you pay off your mortgage, ownership transfers from the bank to you. If you tell a friend “You own a nice home” they might reply: “Thanks, but the bank actually owns it.” That’s what they mean.
The person transferring the property gives up any personal claim of ownership. It doesn’t confirm they really own the property or if any liens or debts are outstanding. This is the least amount of protection you can get. It’s often used when each party knows the other, like in a family. These are often utilized in divorces when one party gives up ownership of their share of the property.
Bargain and sale deeds
This is similar to the quitclaim deed above. The grantor holds the title and is transferring it to the seller. They aren’t addressing any debts on the property.
Special warranty deed
A general warranty deed might protect the grantor against any claims originating before the property changed hands. A special warranty deed only over the time the grantor owned the property. Anything that happened before that isn’t their problem. It’s yours.
Sometimes people don’t pay their property taxes. After a certain amount of time, the local government can assume ownership of the property in lieu of back taxes owed. The property is often auctioned off, the buyer effectively paying the back taxes oved plus interest penalties and sale costs.
What happens if the property sells for more than the outstanding debts? The former property owner can try collecting the excess amount from the municipality.
Deed of trust
A deed of trust serves a purpose similar to a mortgage deed. Some states don’t call the term for loans used by homebuyers as mortgages.
A mortgage involves two parties, the bank and the borrower. The bank hold the title through a mortgage deed. In states using the deed of trust, there are three parties, the lender, the trustee and the borrower. The trustee holds the title although the person getting the loan lives in or runs their business from the property.
Transfer on death deed
Not every state allows it, but there is a beneficiary listed in the documentation. Once the owner of the property dies, ownership transfers.
Deed in lieu of foreclosure
Let’s suppose the homeowner is behind in their mortgage payments and risking foreclosure. Deed in lieu of foreclosure describes the process where the borrower offers the property back to the bank and they accept. The bank accepts the property and releases the homeowner from their obligation to pay the mortgage. This is voluntary, both parties sign the agreement and it’s recorded by the county.
Grant deeds in California
Are the rules concerning grant deeds different in The Golden State? Not really, but there is a slight difference.
Consider three types of deeds: Warranty, grant, and quitclaim.
Warranty provides the most protection against past liens. Quitclaims provide none. In California, the grant deed requires the owner to state there were no outstanding liens during their period of ownership and take responsibility if they occur.
A good example is another person claiming the property owner already sold the property to them. This implies the grantee doesn’t own the property now because the grantor didn’t have it to sell, since they sold it previously. They can be sued by the grantee. This is similar to a special warranty deed in general terminology.
Frequently asked questions
Is a grant deed the same as a title?
A title is a concept. It implies ownership. The grant deed is the legal document transferring title (ownership.)
What is the difference between a grant deed and a quitclaim deed?
The grant deed indicates there are no debts or liens against the property. The quitclaim deed doesn’t provide the same protection.
Is a grant deed the same as a mortgage?
A grant deed is often used when a property is being transferred for cash and a bank loan (mortgage) is not involved. Buying property using a mortgage introduces a third party, the bank. In that case, a mortgage deed is used.
What is the difference between a grant deed and a deed of trust?
A grant deed transfers ownership between the seller and buyer, known as the grantor and grantee. No loan is involved. A deed of trust is used when the property is used as collateral for a loan. It’s similar to a mortgage deed. The trustee holds the title, but the borrower can use the property. Ownership transfers when the loan is paid off.
- Ownership of title is a concept. The grantor deed is the legal document conveying ownership between the grantor and grantee.
- The object of the grantor deed is to transfer ownership to the grantor and confirm there are no debts or liens on the property.
- The document should be witnessed, notarized, and placed on file with the local government.
- The grantor deed is a basic type of deed. There are other deeds providing greater or lesser levels of protection.
- Deeds Registry – Los Angeles County Registrar-Recorder/County Clerk
- Frequently asked questions – San Diego County
- Deeds and conveyances – South Dakota Legislature
- What is a participation mortgage – SuperMoney
- How to lower your monthly mortgage payment – SuperMoney
- What is a warranty deed? – SuperMoney
- Deeds vs. Mortgage – SuperMoney
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon. Bryce spent twenty years with a major financial services firm as a successful financial advisor. He has been published in 40+ metro market editions of American City Business Journals, Accountingweb, NAIFA’s Advisor Today, The Register, LifeHealthPro, Round the Table, the Financial Times site Financial Advisor IQ and Horsesmouth.com.