Real Estate Economics 156

Fred Foldvary

Deeds and leases

Deeds

Real estate contracts go back at least to 1677, when Parliament enacted the statute of frauds that required that transfers of title to real property be in writing.

The US states have applied that statute, so when title to real property is transferred,

the seller - grantor - must provide a written deed to the buyer - grantee, the new owner.

The deed has to describe the parties, consideration, a legal description of the property, and the bundle of rights conveyed.

The deed is signed by all the parties.

A contract has to have consideration, or payment, something of economic value.

The consideration in the deed does not have to be the actual amount paid.

Consideration is provided in return for title to the property.

It can be a nominal amount to keep the purchase price secret.

The grantor must sign the deed in the presence of witnesses.

When the deed is signed, it has been executed.

The deed is delivered to the grantee.

The grantee must record the deed in the county’s records to assure protection against a claim of transfer to someone else.

The deed may include covenants and warranties.

A covenant is an agreement restricting the operational rights of the owner.

A warranty is a guarantee that the statements are true and the covenant will be in effect.

In a warranty deed,

the grantor assures that there are no liens or encumbrances

other than those recorded,

that the grantor has a fee simple title which is being transferred,

and that the grantor is in full possession of the interest being conveyed,

and so has the right to convey it (covenant of seisin).

This is also a warranty forever, meaning that the grantor promises

to always defend the title conveyed.

A special warranty deed limits the extent of the grantor’s warranties to events that occurred during the grantor’s time of ownership.

A deed that does not contain any express covenants as to the title’s validity is called a bargain and sale deed, or a warranty deed without covenants, or a grant deed.

A quitclaim deed only transfers the interests of the grantor

but does not imply that the grantor has any rights to the property, or any obligations,

or valid interests.

It is used to clear away defects in the title or to release marital interests.

Title examination

A marketable title is free of all claims that would cause a reasonable purchaser to reject the title.

An insurable title is one that a reputable title insurance company is willing to ensure.

A title perfect of record means that the public records related to the particular title involved show no defects whatsoever.

Title insurance pays the grantee in case of deficiencies in the title,

or defends the title in court.

The insured person only pays a one time fee.

The insuror does a title search to examine the chain of title.

Real estate titles are public and open to inspection.

The examiner also has to check for delinquent tax payments and court records for liens.

Only past events are insured.

The Torrens System of land registration provides the landowner

with a title certificate similar to that of a car.

A judge issues a decree naming the true owner of the land and any valid claims against the land.

To transfer title, the old certificate is returned, and the registrar issues a new one.

Twelve states use it; not California.

It eliminates the need for many lawyers and title insurance companies.