Know the types of deeds and taking title in California to protect yourself.
Buying real estate sometimes resembles buying the first umbrella you see sold by a street vendor on a rainy day. Too rushed to leisurely inspect and test the umbrella before using it with heavy rain and fast winds.
A surprising number of buyers live far away from the real property’s location whether in a different state or a country. For instance, a buyer proclaims: “Craigslist photos look great! A steal at the listed sales price. Better buy it now or I’ll never get the same bargain again.”
Know The Types of Deeds and Taking Title in California
Let’s explore the different types of real estate title deeds and ways to take the title.
You’ll learn how to protect yourself even if buying from a long distance.
5 Types of Deeds in the U.S.
In the U.S., five types of deeds exist:
- General Warranty Deed;
- Special Warranty Deed;
- Bargain and Sale Deed;
- Quit Claim Deed; and
- Grant Deed.
General Warranty Deed in California
Offering the biggest protection to buyers.
The seller makes a guarantee that no problems with the title exist, such as clouds, liens, and claims. This warranty extends from when the property first sold to the current buyer.
In California, a General Warranty Deed known as the “California Warranty Deed” gives unlimited warranty of title. It guarantees the seller maintains good title to the property. Source
Special Warranty Deed in California
Offers less security as the seller only guarantees the property is free from title clouds and liens during the time the seller owned it.
If the seller recently bought it, the guarantee doesn’t amount to much. Properties bought through foreclosure and bank repossession sales often use this deed.
California allows the use of a Specialty Warranty Deed. But, it’s not used very often. Mainly used in commercial real estate sales than residential. Also, title insurance typically bought to protect the buyer. Source
Trust Deed in California
Many states use a Bargain and Sale Deed.
Often used during court seized residential properties sales. While conveying title, the seller does not guarantee free and clear ownership. There may be other liens needing payment.
California does not allow Bargain and Sale Deeds. Instead, California uses a Trust Deed with a “Power of Sale” clause for lenders so they foreclose on a default property without filing a lawsuit. The property sold at a foreclosure auction known as a “Trustee’s Sale”. Source
Quit Claim Deed in California
Mostly used for quick title transfers like a divorce when one spouse quitclaims to the other.
Basically, the person using a Quit Claim Deed simply quits all claims to the property, whether any exist or not. Scammers use this deed a lot as it contains no guarantees at all.
Read our blog post about protecting yourself from scammers. Here
California laws allow the use of Quit Claim Deeds. However, the law requires all quitclaim deeds signed and notarized to become valid. In addition, quit claim deeds recorded with the county recorder’s office or county clerk. Source
Grant Deed in California
Often used in residential property sales.
The seller conveys the property to the buyer with a guarantee of owning the property with the right to sell. But, no guarantees that the title contains clouds and liens.
California Section 1092 of the Civil Code allows the use of a Grant Deed. Only two promises exist with a Grant Deed. The seller didn’t transfer title to another party and the property is free of encumbrances and liens unless otherwise stated in the deed. Again, title insurance protects California buyers using this deed. Source
As you see, these five deeds differ. Obviously, the best deed remains the General Warranty Deed almost always used in the sale of residential properties.
The Benefits of Title Insurance
The problem with most of the deeds mentioned above become solved by getting title insurance. Every lender requires title insurance to protect their mortgage or loan.
But, cash sales without a lender doesn’t require title insurance. Therefore, every buyer needs to purchase title insurance to protect themselves in an all-cash sale.
Title insurance involves conducting a search of the title’s history in the public records to ensure the title properly transferred from the first owner to the current buyer. Any liens, encumbrances, and title clouds get resolved before the escrow closing.
If a mistake occurs during the title search the title insurance policy requires the insurance company to fix any clouds, liens, and encumbrances. These mistakes most often occur with the sale of distressed properties where an unrecorded lien or a claim to its ownership shows up after the closing.
We recently published a post here explaining title insurance. Read about it. Here
Now after learning about the different types of deeds and how title insurance protects against any problems let’s explore the different ways to take the title.
4 Ways to Getting Real Estate Title in California
The four ways to take title to real estate in California include:
- Tenancy in Common;
- Joint Tenancy;
- Ownership in Severalty; and
- Tenancy by the Entirety.
Tenancy in Common in California
A property with multiple owners with each owning a percentage.
While the percentage doesn’t have to be equal it often occurs with small numbers. Like three owners each owning 1/3 percentage. Or, they own in different percentages like A owns 20%, B owns 25%, C owns 40%, and D owns 15%.
Each one can sell their shares or mortgage it without getting the other owners consent. Upon the death of each owner that percentage does not automatically go to the other owners. Instead, it goes to the deceased owner’s heirs.
California law follows the above-mentioned explanation. Except, allowing a property held by some owners as Tenancy in Common and others in Joint Tenancy. Source
Joint Tenancy in California
Another property with multiple owners. However, each one maintains an equal ownership percentage.
The difference with Tenancy in Common involves the Right of Survivorship.
When one owner passes away the other owners receive an equal percentage of that deceased’s ownership. Joint Tenancy owners can’t sell their shares or will them to heirs.
California law allows individuals to own real property as Joint Tenants with the Right of Survivorship.
When one party dies the other party receives the deceased’s share. In addition, California’s Community Property Law automatically allows married couples and registered domestic partners the same rights as Joint Tenancy. Source
Ownership in Severalty in California
Only a single person or legal entity (like a corporation or LLC) owns the property. The term “severalty” means the owner “severed” from any other owners.
California also recognizes Ownership in Severalty as described above. Source
Tenancy by the Entirety in California
Similar to Joint Tenancy except only two tenants own the property.
In addition, they must be legally married and can’t convey or sell their share without the other tenant’s consent.
California does not recognize Tenancy by the Entirety because its Community Property laws already protect a married couple in a similar manner. Source
Knowing the types of deeds and taking the title in California protects you from real estate scams.
It also shows you what rights you possess depending on the deed and title. Learn how these come together during the escrow process in California. Here
Getting title insurance protects you from most problems with non-warranted deeds like liens, title clouds, and encumbrances. Read our blog post about how to avoid clouding title. Here
Using a professional escrow company also provides you with additional protections.
For instance, your escrow company won’t close on your real estate purchase until all conditions in the contract become fulfilled. Read our blog post explaining how escrow protects buyers and sellers. Here
Steven Rich, MBA – Guest Blogger
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