August 5, 2013

Recording a Deed

If you don't have time to do it right, when will you have time to do it over?" Albert Einstein. 

When it comes to writing and funding a revocable trust, there are no repeats or do-overs. I am pretty sure that nobody has been risen from the grave who amended or finalized their trust to ensure a smooth administration. So if a person wishes to expend the money necessary to create a revocable trust, then naturally they want to start and complete the task appropriately. The focus here is on trust funding, i.e. the recording of the deed that transfer the person's interest in their home to their trust. 

One of the primary reasons to write a revocable trust is because the transfer of real estate from a dead to living person is usually optimally achieved through such an instrument.  Other methods used to transfer real property include a gift deed and probate but both of those methods have numerous failings, e.g. cost, lack of control, tax disadvantages, liability issues, etc.

Once the deed has been executed, the next step is to record the deed. This is a very important step because it provides notice to third-parties, i.e. everybody in the world, who were not a party to the transaction. For example, "every conveyance of real property or an estate for years therein acknowledged or proved and certified and recorded as prescribed by law from the time it is filed with the recorder for record is constructive notice of the contents thereof to subsequent purchasers and mortgagees." CC § 1213. In regular English, the statute means that if a deed is properly recorded, a buyer will be imputed to have constructive knowledge of the transfer, i.e. they ought to know of the transfer. Even if the purchaser is unaware of the conveyance, the law assumes that they know about it because the deed has been recorded.

The deed recording usually occurs after the revocable trust has been executed. This is logical because the trust cannot hold assets until it is created. Similarly, a person cannot deposit money into a bank account until it is opened.  Thus, once the trust has been formed, assets can transferred into it. Although, a deed can be transferred into a trust pending formation if (1) the deed was executed in anticipation of the trust's creation and (2) the trust is actually formed. Luna v. Brownell (2010) 185 CA4th 668.  

Researching recorded deeds in California is actually quite easy. In law school, we learned about the grantor-grantee index. This was the prior method used to research recorded deeds. I will spare you the boring details. Fortunately this antiquated system has been replaced by online searches. Many commercial companies offer subscriptions to research recorded deeds for California's 58 counties. Furthermore, numerous counties also offer free online real property searches but the results will just show names and not the actual document. For example, Santa Clara County has a very good recorder's website, although you cannot view the documents on your computer. In order to view the documents, you must go to the computers at the recorder's office, 70 W Hedding Street San Jose, CA 95110.

Failure to record a deed can prove disastrous. For example, the deed can be lost  and a Heggstad petition might be required to transfer the real property into the trust. Or worse, the Heggstad petition can be denied and probate might be required.