What is the difference between a deed and title?
Most people assume that Property Deeds and Titles are the same thing, but they are actually two different things that serve two different purposes. When studying for the real estate exam, most of us learn that title means ownership and a deed is evidence of the transfer. It’s like when your mother packed your lunch box for elementary school and she wrote your name on the box- that represented “title” to the box because it shows ownership. The receipt that your mother had when she bought it proves that ownership was transferred from the store to your mother, just like with a deed. The receipt is her evidence of the transfer. Let’s dive in a little further.
What is Title?
Let me start by saying that “title” is a concept, not a piece of paper. Title is the legal way of saying you own a right to something. In real estate, it refers to your legal ownership of a home. It gives you the right to live there, and sleep there, and use it as you wish. It may be a partial interest in the property or it may be full ownership. As long as you have title, you can access the land and enjoy it as you see fit. Title also means that you can transfer your interest or a portion of it to others. However, you can never legally transfer more than you own.
In a nutshell, title is a concept used to describe a bundle of rights afforded to a homeowner or titleholder.
The bundle of rights include:
- The right of possession
- The right of control
- The right of exclusion
- The right of enjoyment
- The right of disposition
The title to a property gives you the legal go-ahead to sell it again someday.
But there’s a catch: You can’t transfer ownership of a property until you “clear title”, which means that you’ve proven your title to the house is free of any clouds or defects such as liens, judgments, or bankruptcies. The buyer of your house and the lender financing the transaction don’t want to take on any of your old debts that use the property as collateral. So to check for any potential problems before closing, a title search is performed. Any title issues identified in the title search have to be cleared before the sale can move forward.
Common title defects include:
- Contractor liens put against your house for a kitchen remodel
- Improper title transfers due to a past paperwork error
- Unpaid taxes
- Bankruptcy filings
- Child support liens
- Boundary encroachments
- And many more!
Until you can confirm the absence of any defects, or resolve those that do come to light, you don’t have a “clear” and “marketable” title to transfer to the buyer. That will bring your sale to a screeching halt until you can clear the issues and make your title marketable again.
Abstract of title
When a sale contract is authorized, an abstract of title is generated that shows everything that has been recorded about that property at the county courthouse. The abstract of title often includes a summary of the original grant, subsequent changes in ownership, any encumbrances on the property, and a statement by the person preparing the abstract that it is complete and accurate.
Now that you understand what title is, let’s talk about deeds.
Unlike title, deeds are physical legal documents. The deed is the buyer’s guarantee that the seller actually owns the property free and clear with no liens, encumbrances, easements, or clouds on the title. The deed contains the names of the seller and buyer along with the complete legal description of the property. The deed is signed by the seller, generally in front of a notary public in order to acknowledge the signatures. It must be a written document, according to the Statute of Frauds.
Sometimes the deed is referred to as the “vehicle” of the property interest transfer. You can transfer only a portion of your title, or you can transfer the entire interest. Deeds must be recorded in the courthouse or assessor's office to make them fully binding in most states, but a failure to file them does not change the transfer of title. It just means that the deed is not “perfected”. An imperfect deed doesn’t mean there is a problem with the title, but there could be a problem with the way that the deed paperwork was handled.
Because it is a physical, legal document, the buyer gets a physical deed in their hands at the time of sale which proves they have title to the house. There are a few main types of deeds to note:
General Warranty Deed
The general warranty deed is most commonly used in traditional home sales and provides the most protections for people buying your home. It means that you, the owner, have clear title and a right to sell the property, and that you have no knowledge of any unforeseen issues that might come up with the title for the life of the property. It also says that no one else has rights to own the property.
Special Warranty Deed
A special warranty deed is similar to the General Warranty Deed with one exception: it only promises a clear title for the time you’ve owned the home. This is generally used for commercial real estate transactions, and can also be called a Covenant Deed.
Like the two types of warranty deeds, a grant deed shows that you have clear title to sell and no knowledge of anything that might impact the title. But it doesn’t include a warranty that you’ll defend the title against anyone else who may pop up and stake a claim to the property after the sale takes place.
A quitclaim deed offers the least amount of protection for a buyer of your home. The quitclaim deed transfers rights and ownership to the buyer, but does not provide any guarantee that the seller actually has the right to do so. With a quitclaim deed, even if the seller is not legally allowed to sell the house the buyer has no recourse after the sale because no warranties were made by the seller. For this reason, it’s normally used when a property owner gives a house to someone they have a strong relationship with, for example a father to a son.
Bargain and Sale Deed
If your home is being sold in a tax sale or foreclosure, the property may be sold with a bargain and sale deed. This means that the seller doesn’t need to clear the title and there are no protections for the buyer. So, for example, if there are liens on a property sold with a bargain and sale deed, they are purchased along with the property and the buyer is responsible for cleaning everything up after the fact.
The terms title and deed are often thought of as the same thing, but their legal meaning is quite different. Once you understand the relationship between the two, you’ll have a better idea of your rights and responsibilities as an agent, as well as a clearer understanding of the closing process. The easiest way to think about the difference is that the title is a legal way of showing that you own the rights to something (full or partial), while deeds are the legal documents that transfer title from one person to another. When you own a property entirely, you will possess both the deed and title.