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When you begin your house hunting process, you’re bound to encounter plenty of jargon. Some terms are of more importance to your real estate agent or attorney than they are for you to know. But there’s one big point of confusion that all buyers and sellers should understand: title and deed.
The title and deed both deal with home ownership, right? So what’s the difference? In this piece, we define both terms, outline their differences, and explain what you need to know about each.
What is a title?
A title is a legal term that refers to ownership of something. You may have heard of a car title and the concept is similar in real estate. When you lease a car, your leasing company holds the title of the car until you pay off the lease. Then, the title becomes yours.
It’s the same concept in real estate. When you hold the title to a home, you have legal rights, ownership control, and responsibility over that home. Titles can be held by corporations, partnerships, organizations, trusts and, of course, individuals or two or more people.
Things to know about titles
When you buy a house with a mortgage, you have ownership rights, but your lender holds the title since you technically bought the house with their money. That makes titles an especially important part of the home buying process. There are a couple of important things to know about titles.
After making an offer on a home, a title search will uncover any limitations on the property like easements or liens. Either the buyer or seller can initiate this process, but any lender will require it to ensure the seller has the legal right to sell the property and that nobody can make a claim to the title later.
If a seller owes money to a contractor or is behind on property taxes or mortgage payments, he or she may not be entitled to transfer property ownership. That’s an essential thing to know in any real estate transaction.
Because titles can be dicey, many lenders will require a buyer to pay title insurance to protect themselves from potential title issues or encumbrances. Doing a title search is a necessary first step, and a clean search may give you a better insurance rate. Note that title insurance isn’t always mandatory but it’s a good idea.
Imagine you’ve lived in your home for 10 years and suddenly someone claiming to be the grandson of a previous owner shows up, claiming the home was willed to him at his grandparents’ death. If the claim proves legitimate, you may lose your property and the money you’ve already paid in your mortgage if you didn’t purchase title insurance. A previous ownership claim is not common but title insurance is a negligible amount compared to the rest of your mortgage so it’s smart to buy. You might even be able to negotiate that the seller pay for it for you.
What is a deed?
The deed is the actual legal document that transfers a property title from one person to another. The person selling or transferring property rights (called the grantor) signs the deed to officially move legal ownership from themselves to the buyer (or grantee).
So, while a title is the ultimate title of ownership, the deed is the document that proves transference of ownership from a previous owner to the current owner.
Types of deeds
There are a few types of deed that are used for different purposes.
- General Warranty Deed is prepared by a mortgage company and protects the grantee by guaranteeing that the grantor has full title and is the sole property owner with rights to transfer ownership. It also guarantees that the grantor has no knowledge of any potential future title issues.
- Special Warranty Deed is usually used for purchase of commercial property rather than home purchases. It’s similar to a general warranty deed but only guarantees the title for the time the property was owned by the seller.
- Quitclaim Deeds are usually used when transferring property from one legal entity without the exchange of money. This could be parents giving property to children, one spouse giving property to another, or part of an ownership transfer to a trust or LLC.
Differences between titles and deeds
Titles and deeds are part of the same process: Transfer of ownership. However, there are a few key aspects that can help you differentiate them in your head.
The biggest difference, as we’ve touched on here, is that one can’t exist without the other. A deed signifies the transfer of title. You can’t have a deed if there was never an agreement to transfer the title.
While a deed represents the right of a new owner to claim legal property rights from a previous owner. You only have those legal property rights if you are the ultimate holder of the title. (Yes, even if the bank holds title, you are still a partial title holder, giving you many rights of ownership.)
The title and deed will come into play at different points of the closing process. As we mentioned, early in the closing process, a title search will examine public records to see if there are any easements, liens, or conflicting property claims.
The public records searched will include previous deeds, mortgages, liens, wills, divorce settlements, and other public documents that describe property ownership. All of these documents will help a title examiner create a title abstract that determines whether or not a property has a clear title. That is, whether the current title holder can legally sell the property.
Once the examiner approves a clear title, you’ll proceed with closing. During the final closing date, you’ll get the deed. When the seller signs the deed, it transfers the title and ownership of the property to the buyer. Then, the buyer signs to pay off the old mortgage loan (if applicable) and inherit the title.
Finally, the biggest difference between a deed and a title is that a deed is a physical document. A title is abstract. The deed to a property is an official written document that in most states are required to be recorded in a courthouse or assessor’s office. It must be in your physical possession after getting it from a previous owner. The title is simply a conceptual term referring to the rights of property ownership conveyed by the signing of the deed.
Think about the “title” of a book. Can you hold it? No, but you can hold the book itself and the pages within. That’s how you can remember the difference.
Deeds and titles are both essential real estate terms to know. But while both refer to home ownership, they’re different in both where they come into the process and what they actually do.