September 29, 2010

Grant Deed

Whenever a home is transferred whether by inheritance, probate sale, trustee sale, short sale, eminent domain, etc. a deed is involved. 

A deed is defined as a “written instrument by which land is conveyed.” Black's Law Dictionary 8th ed. (West Group, 2004). 

For example, if buyer purchases Green Acre from seller, buyer will transfer ownership of Green Acre to seller by giving seller a deed to Green Acre. In the context of a modern real estate transaction, the escrow/title officer at closing will have the seller sit down and sign the deed transferring ownership of the home to buyer.

There are three types of deeds used in real property transactions: grant, warranty and quit-claim. However, due to the advent of title insurance, only grant and quitclaim deeds are used in California. A grant deed is a conveyance that includes all the implied warranties and covenants of title. CC § 1113. In non-legal speak, this means that if seller did not own the property when they transferred it to buyer, for instance seller sold the home to somebody else a few months beforehand, then buyer could turn around and sue seller for breach of covenant of title. A quitclaim deed only transfers the interest seller had at the time of the transfer. Klamath Land & Cattle Co. v Roemer (1970) 12 CA3d 613. Thus, if seller did not own the land that they transferred to buyer and buyer later learns of this, buyer would have no recourse against seller.

The reason why deeds are relevant for estate planning purposes is because a home will need to be transferred into the trust in order for the trust to own the home. Thus, the estate planning attorney will typically prepare a deed transferring the family home into the trust the attorney just created for their clients.

Most stationary stores or a county law library site have quality fill-in forms. The problem is that most people do not understand what they are filling out. For example, a deed could create gift tax, potential property tax re-assessment, the imposition of the documentary transfer or the possibility of judgment attachment, etc. Consequently, I have seen a few cases where families decided to engage in do-it-yourself estate planning by executing deeds in which ownership is transferred amongst family members. Typically the results have been disastrous because of the adverse tax consequences that followed.

Executing or interpreting a deed is not an overly complicated task for an attorney. An attorney should be able to resolve most deed problems within an hour or so. This means the attorney fee should not be the cost of your monthly mortgage payment.