Chapter 5: Transfer of Title to
Real Property
© Dearborn Real Estate Education, 2012
Methods of Transferring Title
• Title: the right to and the evidence
of ownership of real estate
– Represents the bundle of legal rights
© Dearborn Real Estate Education, 2012
Methods of Transferring Title
• Voluntary alienation
– By sale or gift
• Involuntary alienation
– By operation of law
© Dearborn Real Estate Education, 2012
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Essential Elements for a Valid Deed
• Must be in writing
• Legal capacity of the grantor
• Grantor and grantee must be identified
• Adequate words of conveyance
• Accurate legal description of property
• Signed by grantors
• Must be delivered and voluntarily accepted
© Dearborn Real Estate Education, 2012
Essential elements for a valid deed
1. The deed must be in writing
2. A grantor must have a legal existence,
be of lawful age and be legally
competent to voluntarily act
a) A deed executed by a minor is voidable
b) A deed executed by a person while mentally
impaired is voidable
c) A deed executed by a person judged legally
incompetent is void
Essential elements for a valid deed
3. A grantor and grantee named so that he
or she can be readily identified
a) The grantee must be a natural, living person or
artificial person, such as a corporation
b) Deed to a dead or fictitious grantee is void
4. There must be adequate words of
conveyance—granting clause
5. There must be an accurate legal
description of the property conveyed
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Essential elements for a valid deed
6. The deed must be signed by the
grantor(s)
a) All grantors named in the deed must sign
b) If grantor is married, spouse must sign even if
not named on the deed
c) Grantee does not usually sign the deed
Essential elements for a valid deed
7. The deed must be delivered and
voluntarily accepted
a) Recordation of the deed is recognized as
acceptance
b) Grantee signature would also prove acceptance
Grantee
• Receives title (property) from a grantor.
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Grantor
• Gives up title – conveys property
Non-Essential Elements for a Valid Deed
• Do not have to…
– Be witnessed
– Be dated
– State amount of consideration
– Acknowledge (notarize)
– Record!
– Sign under seal
© Dearborn Real Estate Education, 2012
Voluntary alienation
•
•
•
•
You want to sell/give
Gift
Sale
By deed (including quit
claim deeds)
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Acceptance
• Must be delivered
Delivery
• To the grantee
Granting clause
• To have and to hold
• More standard language
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Signature of grantor
•
•
•
•
All owners
Exactly as typed
No nicknames
If recorded, must be notarized
words of conveyance
Often called the granting clause
acknowledgement
• Same as notarization
• Not required (by law) on deeds
• Not required (by law) on leases
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covenant against encumbrances
• Part of grantor promise
• Title is promised to be clear
• Typical exceptions
covenant of quiet enjoyment
Title will be good against 3rd parties court
actions
covenant of seisin
• Promise that the grantor owns it
• Leave you alone
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covenant of warranty forever
• Seller will fix liens
• Grantor will compensate the grantee if the
title fails.
• Still in the best interest of the grantee to
get title insurance
Deed types
• Various types
• Must be signed
• Most are recorded
Signed, sealed,
delivered, I’m
yours!
Types of Deeds
• General Warranty
• Special Warranty
• Quitclaim
• Special Purpose
© Dearborn Real Estate Education, 2012
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General Warranty Deed
• Covenant of seisin – has right to convey
• Covenant against encumbrances
• Covenant of quiet enjoyment
• Covenant of warranty forever
© Dearborn Real Estate Education, 2012
Special Warranty Deed
• Warranty that grantor received title
• Warranty that property was not
encumbered by grantor
© Dearborn Real Estate Education, 2012
Special warranty deed
• Same as limited warranty deed
• Good only for the former grantor’s period
of ownership
• Generally contain the words remises,
release, alienate, and convey in the
granting clause.
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Bargain and Sale Deed
• No express warranties against
encumbrances
• Does imply that seller holds title and
possession
• Very similar to quit claim deed
© Dearborn Real Estate Education, 2012
Quitclaim Deed
• Non-warranty deed
• No express or implied covenants or
warranties
• Used primarily to convey less than fee
simple or to cure a title defect
© Dearborn Real Estate Education, 2012
Quitclaim deed
• May be worthless! Provides the least
protection
• Often used to cure a defect or cloud on the
title
• Transfers only what interest the grantor
may have
• No warranty
• Divorce
• Right to easement
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Special-Purpose Deeds
•
•
•
•
•
•
•
Correction deed
Deed of gift
Deed of release
Deed in lieu of foreclosure
Trustee’s deed
Timber or mineral deed
Deeds executed pursuant to
court order
© Dearborn Real Estate Education, 2012
Correction deed
• Fixes typos
• Not on exam
Deed of gift
• No excise tax
• Recording requirement – must be
recorded within 2 years or becomes void
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Deed of release
• used to release a parcel of property from a
mortgage or deed of trust lien when the
real estate loan has been paid in full
Deed in lieu of foreclosure
• Not required of lender
• Lose of deficiency right
• Bad credit
Lien foreclosure
• You no pay
You no stay
• Taxes, mortgages, other liens
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Trustee’s deed
• Used to convey property out of a trust to
anyone other than the trustor
• Executed by the authority granted to the
trustee
• Used to transfer title after a foreclosure
auction
Timber or mineral deed
severing of specific ownership rights by
deed
Executed pursuant to court order
•
•
•
•
Bankruptcy
Death
Sheriff’s deed
Guardian’s
deed
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Excise Tax
• Paid by sellers in most real estate
transfers
• Also called deed transfer tax or
revenue stamps
• Rate is $1 per $500 of consideration
or portion thereof
• Calculated on full purchase price
• Always a whole dollar amount
© Dearborn Real Estate Education, 2012
Excise Tax on Property
Transfers
What does the seller owe the
state for excise tax?
Formula to remember
Sale price
500
= Excise tax
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Notes
•
•
•
•
Disregard financing & earnest money.
No excise tax of gift deeds.
This is always paid by the seller.
Enter this on the back side of the HUD-1
form.
• This money is earmarked for state park
maintenance.
Methods of transferring Title
•
•
•
•
•
Deed
Will
Gift
Escheat
etc
Grantor
Grantee
Involuntary Alienation
• Escheat
• Eminent domain
– The right of the government to take
private land for public good
– Condemnation is the process
– Just compensation must be given
– Taking of leased property
terminates the lease
© Dearborn Real Estate Education, 2012
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Involuntary alienation
• You did not
want to sell
• Examples
– Death
– Adverse possession
– foreclosure
Escheat
•
•
•
•
No will – you died intestate
No relatives could be found
Assets go to State of NC
State Treasurer’s Office
www.treasurer.state.nc.us
Educational Assistance Administration
Richard
Moore
Eminent domain
•
•
•
•
5th amendment
Fair value repayment
Government only
Power that allows condemnation
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Eminent domain
• Use must be for the public good
• Owner must receive just compensation
• Owner is entitled to due process to protect
rights
Involuntary Alienation
• Lien foreclosure
• Adverse possession
– Open
– Continuous
– Exclusive
– Actual
– Notorious
© Dearborn Real Estate Education, 2012
Adverse possession
•
•
•
•
•
OPEN
CONTINUOUS
EXISTING
ABSOLUTE
NOTORIOUS
“Squatter’s
Rights”
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Adverse possession
• In North Carolina, the required period of
continuous possession varies widely (7-20
years) depending on circumstances
• Must go to court to get clear title
• Difficult to prove
Transfer of a Deceased Person’s Property
• By descent (intestate succession)
• Transfer of title by will
© Dearborn Real Estate Education, 2012
Statute of descent and distribution
• NC LAW
• Who gets you property if you die intestate
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Transfer of deceased person’s
property
• The North Carolina court will appoint a
person to distribute the deceased person's
property according to the NC Intestate
Succession Act
• If no heirs, the property will escheat to the
state of North Carolina
Transfer of title by will (a devise) if
the person dies testate
• A will becomes effective only after the
death of its maker
• It must strictly adhere to the laws of North
Carolina
Beneficiary
• Person who receives proceeds of a will
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Devise
• A gift of real property in a will
Devisee
• Person who receives
real property in a will
Title Assurance
Five criteria for marketable title:
1. Free of significant liens and
encumbrances
2. No serious defect
3. No questions of law or fact that
question its validity
4. Promise of quiet enjoyment to grantee
5. Be reasonably assured of fair market
value
© Dearborn Real Estate Education, 2012
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Title Assurance
• Title Search
– Marketable Title Act
• Title Insurance
• Title Recordation
– Necessity for recording
– Conner Act
– Torrens System of Land
Registration
© Dearborn Real Estate Education, 2012
Marketable title
Real estate contracts usually require the seller to
deliver marketable title to the buyer at closing.
To be marketable, a title must meet 5 criteria:
1)
2)
3)
4)
Be free from any significant liens and encumbrances
Disclose no serious defects
Be free of doubtful questions of law or fact to prove its validity
Protect a purchaser from the hazard of litigation or any threat to
quiet enjoyment of the property
5) Convince a reasonably well-informed and prudent person that
property could be sold or mortgaged at fair market value
Title assurance
• 4 features
Title search
Survey
Warranty deed
Title insurance
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Title search
• An examination of public records to determine
what, if any, defects in the chain of title
• Search begins with present owner and traces
back to the origin prepare an abstract of title
• A gap in the chain requires a suit to quiet title
• An abstract will include all owners,
encumbrances, and liens
Will
• Instruction on distribution of assets
Abstract of title
• Attorney notes
• Not for buyers
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ALTA (American Land Title
Association) policy
• Gives additional coverage to a title
insurance policy
examples:
– Forged deeds
– Deeds from unsound people
– Missing heirs
See p. 76 for title defects
Certificate of Title
• Statement of opinion on the status of the
title to a parcel of real property based on
an examination of public records
Chain of title
• All previous owners of a parcel
Chain of title
Chain of title
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Suit to quiet title
• Clears liens and encumbrances
Title commitment
• Issued by title insurance company
• Includes
– Face value
– Legal description
– Estate covered
– Exception
– etc
Attorney’s opinion on title
• Letter to buyers
• Result of good title search
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Recording
• Buyer expense usually
• Exception - mortgage cancellation
recording
Title recordation
• At the Registry Of Deeds
• Buyer expense
Conner Act
• Regulates operation of Registry of Deeds
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Marketable Title Act
• 30 year liens notice
Title evidence
• deed
OTHER TERMS TO REMEMBER
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Limited warranty deed
• Shorter warranty period
• Also called special
warranty
• Less desirable
• Grantor promises that he
will defend and protect the
grantee’s title only against
claims resulting from the
grantor’s ownership
period.
Non-warranty deed
• Bargain and sale
• Quitclaim
• Does not affect appliances, etc.
Special purpose deeds
•
•
•
•
•
Not important on exam
Timber
Minerals
Guardian’s
Executor’s
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Grantee and grantor index
• Search system at Registry of Deeds
Laura Riddick
Wake County Register of Deeds
Title examination
• Done by attorneys
P 35
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Title insurance
• Protects against future claims from past
problems
Owner’s title insurance policy
• Lenders vs. owners
• Buyer expense
An owner’s title insurance policy will except or exclude coverage for defects
that are or would have been disclosed by a survey. The primary difference is
that by ordering a survey, the borrower learns prior to settlement of the
presence of these matters that may influence his/her decision to proceed
with the purchase of the property.
Notice
• Actual vs. constructive
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Actual notice
• Move in
Constructive notice
• Register your deed
Louisiana Land Title
Part of rebuilding New Orleans caused residents often to be
challenged with the task of tracing home titles back potentially
hundreds of years.
With a community rich with history stretching back over two
centuries, houses have been passed along through generations of
family, sometimes making it quite difficult to establish ownership.
Here's a great letter an attorney wrote to the FHA on behalf of a
client:
(A New Orleans lawyer sought an FHA loan for a client. He was told
the loan would be granted if he could prove satisfactory title to a
parcel of property being offered as collateral. The title to the property
dated back to 1803, which took the lawyer three months to track
down. After sending the information to the FHA, he received the
following reply.)
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Louisiana Land Title
(Actual reply):
"Upon review of your letter adjoining your client's loan
application, we note that the request is supported by an
Abstract of Title. While we compliment the able manner in
which you have prepared and presented the application, we
must point out that you have only cleared title to the
proposed collateral property back to 1803. Before final
approval can be accorded, it will be necessary to clear the
title back to its origin."
Annoyed, the lawyer responded as follows:
Louisiana Land Title
(Actual response):
"Your letter regarding title in Case No..189156 has been received. I
note that you wish to have title extended further than the 194 years
covered by the present application. I was unaware that any
educated person in this country, particularly those working in the
property area, would not know that Louisiana was purchased by the
United States from France , in 1803 the year of origin identified in
our application.
"For the edification of uninformed FHA bureaucrats, the title to the
land prior to U.S. ownership was obtained from France , which had
acquired it by Right of Conquest from Spain . The land came into
the possession of Spain by Right of Discovery made in the year
1492 by a sea captain named Christopher Columbus, who had been
granted the privilege of seeking a new route to India by the Spanish
monarch, Queen Isabella.
Louisiana Land Title
(Actual response):
The good Queen Isabella, being a pious woman and almost as
careful about titles as the FHA, took the precaution of securing the
blessing of the Pope before she sold her jewels to finance
Columbus 's expedition.
"Now the Pope, as I'm sure you may know, is the emissary of Jesus
Christ, the Son of God, and God, it is commonly accepted, created
this world. Therefore, I believe it is safe to presume that God also
made that part of the world called Louisiana .. God, therefore,
would be the owner of origin and His origins date back, to before
the beginning of time, the world as we know it and the FHA. I hope
you find God's original claim to be satisfactory.
"Now, may we have our damn loan?"
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End Chapter 5
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