Chapter 5 Deed and Title Examination

1. Chapter 5Deed and Title Examination REI 330: Real Estate Principles

2. Deed and Title • Anyone with a valid ownership interest or claim is said to hold a title for real estate. • A deed is a special form of contract used to convey title from one person to another.

3. Elements of a Deed • Grantor and Grantee • Recital of consideration • Words of conveyance • Covenants • Habendum clause • Exceptions and reservations clause • Land description • Acknowledgement • Delivery

4. Types of Deeds • General warranty deed • Special warranty deed • Deed of bargain and sale • Quitclaim deed • Grant deed

5. Statute of Frauds • Land ownership was originally determined by who possessed the land. Landowners gave notice by occupying the land. But that did not necessarily mean they were the real owners. • The Statute of Frauds was enacted in England in 1677. Written deeds to real estate were one of the requirements. • Problem: There was still no way to determine who held the most current deed to the property.

6. Notice of Claim to Land • Visibly occupying or making use of the land (remember the requirements of adverse possession) • Recording documents in the public records to give written notice

7. Public Records • Constructive Notice – recording documents • Actual Notice – knowledge based on what is heard, seen, read, or otherwise observed • Inquiry Notice – law requires that reasonable person would ask about right or evidence not included in the public records

8. Recording Acts • All states have recording acts that provide for documentation when an estate, interest, or right in land is created, transferred, or encumbered. • A deed or mortgage is not effective for subsequent purchasers and lenders (without actual notice) if it is not recorded. • Prospective purchasers, mortgage lenders, and the public at large are presumed notified when a document is recorded.

9. Types of Indexing Systems • Tract Index – simplest type of indexing system to use. Each page is allocated to either a single parcel of land or group of parcels, called a tract. A few words describing each document (mortgage, deed, etc.) is provided • Grantor and Grantee Index – Each calendar year the grantor index lists in alphabetical order all grantors named in the documents that year. Next to each grantor is the name of a grantee and a few words describing the document (mortgage, deed, etc.). The grantee index is the same as the grantor index but organized by name of the grantees.

10. Title Search • Example: You want to prove that Robert T. Davis is really the owner of a particular parcel. Go to the grantee index and look for his name starting with the most recent calendar year and going back in time. When you find his name, there will be a book and page reference to a photocopy of his deed to the parcel. • Next, go through the grantor index forward in time to make sure he did not already grant the title to someone else. • Then, see who the grantor is in that deed and go back to find his name in the grantor index. Repeat the above procedure as needed to establish chain of title.

11. Chain of Title • Chain of Title – the linkage of property ownership that connects the present owner to the original source of the title.

12. Chain of Title • Mortgage/Mortgagee Index - lists current name of each mortgagor or mortgagee • Judgment rolls and lispendens index – list judgments and pending lawsuits in the county clerk’s office • Search public records and do on-site search for recent construction to evaluate for possible mechanic’s lien • Check with local county tax assessor’s office for any possible unpaid taxes • Title searchers may also examine birth, marriage, adoption, divorce, probate records, military records, and federal tax liens

13. Methods of Title Assurance • Abstract of title – summary of records by attorney • Title insurance – abstract of title + insurance policy in the event of undiscovered errors in the abstract of title

14. Abstract of Title • A complete summary of all recorded documents affecting the title of a property • Recites in chronological order all recorded grants, conveyances, pending lawsuits, recorded easements, mortgages, wills, tax liens, judgments, marriages, divorces, etc. that might affect title • The abstractor will summarize each document, note the book and page (or other source) where it was found, and give the date it was recorded or entered

15. Title Insurance • Title commitment – summarizes the terms and conditions under which the title insurance company will issue the policy to the buyer. • Policy premiums – pay a single amount good for the whole time the owner or his heirs have ownership in the property (usually around 0.5% of the amount of insurance purchased). • Lender’s policy- provides protection against loss due to a superior claim to collateral property resulting from error in the title search (required). • Claims for losses – when an insured defect arises, the title insurer can either pay on the loss or fight the claim in court. For this reason, title insurers try to keep meticulous records and perform careful title searches.

16. Reasons for the Growth of Title Insurance • Signing a warranty deed puts a great deal of burden and obligation upon the grantor. By purchasing title insurance, he can transfer that obligation to the title insurance company. • Even with a warranty deed, the grantee has reason to worry that the grantor will not make good on his covenants and warranties. • Removing the risk associated with defective titles makes borrowing a little cheaper and easier for property owners. • Lenders can charge a lower rate because they accept less risk. • Secondary market purchasers of mortgages require title insurance • Title insurance makes titles to land much more marketable.

17. Marketable Title Act • Stops claims to rights or interest in land that have been inactive for longer than the required statutory period

18. Torrens System • A system of land title registration that starts with a landowner’s application for registration and the preparation of an abstract. • This is followed by a quiet title suit at which all parties named in the abstract and anyone else claiming a right or interest in the land may attend and be heard. • A government-appointed registrar of titles issues and maintains claims to title as well as encumbrances against a property. • At one point 19 states developed title systems based on the Torrens system, but now only 10 states still use the system. Even in those states it is only used in the largest urban centers (Minneapolis, Boston, etc.). • No longer in use due to the lower cost and widespread availability of title insurance.