What is a Deed and Why is it Important
It is a legal instrument used to transfer real property from one person or entity to another. The person who transfers the property is the grantor. The recipient of the real property is the grantee. In some cases, property is transferred because it is being sold or gifted. In other cases, it’s because the property is being funded into a trust. Recording of a deed places the public on notice that the recipient of the property is now the legal owner. It is generally recorded in the county where the real property is located. While it doesn’t generally have to be recorded, it’s a good idea to do so.
Importance of Recordation.
Not every jurisdiction requires that a deed be recorded. Many make it volunteer. However, there are good reasons why you might consider recording your real property deed. Among them are:
- The public is placed on notice that ownership of real property has been transferred whether by gift, bequest, or funded into a trust.
- The grantee may be unable to get a mortgage, insure the property, or sell it with proof of ownership.
- There is the potential for conflicting claims of ownership. Suppose grantor sells property to Buyer A and Buyer A never records the deed. Then, unscrupulous grantor sells the same property to Buyer B. Let’s suppose responsible Buyer B does a title search and only sees unscrupulous grantor’s deed. There would be no way for Buyer B to know that Buyer A actually owns the property. Now there are arguably two owners. Depending on the facts, the jurisdiction, and whether Buyer B is considered a bona fide purchaser, this could be a problem for Buyer A. This could have been avoided had Buyer A recorded his deed.
Bona Fide Purchasers.
Who is a bona fide purchaser? It is the person who (1) buys property, (2) for a reasonable amount, and (3) operates under the belief that the property is free and clear of any encumbrances. Encumbrances could be conflicting claims, liens, unidentified mortgages, long-term subleases, etc. Again, looking at the example above, if Buyer A never recorded his deed, Buyer B was not placed on notice as to his title. Thus, Buyer B could be declared the lawful property owner, so long as she records hers before Buyer A.
Title vs. Deed.
The deed is a physical document that grants property ownership rights associated with the property’s title. The combined deed and title to the property transfers rights in the property from the grantor to the grantee. But a title and a deed are not the same thing.
Title refers to a property owner’s legal rights, e.g., their right to possess, their right to control, and their right to dispose of the property. Title is a right of ownership, not a legal document.
The deed, on the other hand, is a physical document transferring ownership. To be valid, the deed must include the names of the grantor and grantee, a legal description of the property, and must be signed by the grantor.
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