What Is a Deed?

A deed is a signed legal document that transfers ownership of an asset to a new owner. Deeds are most commonly used to transfer ownership of property or vehicles between two parties. The purpose of a deed is to transfer a title, the legal ownership of a property or asset, from one person or company to another. A deed to real property must be properly filed with the local government for its owner to be able to sell it, refinance it, or obtain a line of credit on it. This task is usually undertaken by the property buyer's attorney or title insurance company.

Understanding a Deed

A deed is a binding document in a court of law only after it is filed in the public record by a local government official who is tasked with maintaining documents. The signing of a deed must be notarized. Some states also require witnesses.

If a deed is not written, notarized, and entered into the public record, it may be referred to as an imperfect deed. The document and the transfer of title are valid, but the related paperwork may need to be on file with the register of deeds to avoid a delay if there is a legal challenge.

Other types of documents that confer privileges comparable to deeds include commissions, academic degrees, licenses to practice, patents, and powers of attorney.

Types of Deeds

There are many different types of deeds, each of which serves a different purpose. They are generally categorized in the following ways:

• A grant deed contains two guarantees: that the asset has not been sold to someone else and that it is not burdened by any encumbrances that have not been disclosed, such as outstanding liens or mortgages. That is, the deed is "free and clear" of defects. Grant deeds do not necessarily need to be recorded or notarized, but it is generally in the best interests of the grantee to ensure that this is done.
• A warranty deed, sometimes called a special warranty deed, declares that the grantor has not caused any title defect while owning the property. It provides the greatest amount of protection to its holder. A warranty deed offers the same guarantees as a grant deed plus a promise that the grantor will warrant and defend the title against any claims.
• A quitclaim deed releases a person's interest in an asset without stating the nature of their interest or rights. The grantor could be a legal owner or not, and makes no promises. Quitclaims are often used in divorce settlements and in transfers of property between family members.

Content Requirements of a Deed

The exact requirements vary from state to state, but they are pretty basic. In California, for instance, the property being transferred must be described adequately. The grantor (the person transferring title to the property) and the grantee (the person accepting title) must be named.

The deed may be void if the grantor is found to be not mentally competent, was signed by a minor or, of course, was forged. A deed does not have to be filed with the local government in order to be valid, but this routine step can avoid trouble and delay down the road if the deed is embroiled in a legal case or the property owner wants to sell the property. Deeds often have a precise and detailed description of the property being transferred. This description typically includes the property's address, boundaries, lot number, and any other relevant identifiers. The more accurate this description can be, the more reliable and helpful the deed will be.

Deeds and Consideration

Consideration is a foundational concept in contract law. It embodies the idea of value exchanged, representing what each party gives up. In the context of a deed, consideration plays a pivotal role in signaling the seriousness and intention behind the transfer. By including consideration in the deed, both the grantor and grantee acknowledge that the transaction is not merely a gift. A deed is closely tied to consideration, as the combination of both cover many of the requirements for a legitimate transaction. By stipulating consideration, the parties demonstrate their mutual intent to enter into a binding agreement for the transfer of property. This helps establish the transaction as a deliberate and consensual act rather than an accidental or involuntary transfer.

Consideration also provides a benchmark for assessing the value of the property being transferred and the fairness of the transaction. While a deed itself signals a transfer, it doesn't evaluate or measure the nature of the transaction. While consideration need not be precisely equivalent to the property's fair market value, There are legal and tax implications if the transfer of a deed does not have consideration.

Deed Limitations

A transfer of ownership can get muddled even when a perfected deed has been filed. There could be a cloud on title for a variety of reasons. False deeds or deeds that contain errors can be filed that require clearing up with the record keepers.

There also can be probate issues. For example, if the owner of a property passes away without defining in a will who should gain control of some property, the heirs might challenge one another in court for the property title.

Moreover, conferring a title through a deed does not necessarily grant the new owners the right to use the property in any way they choose. A deed may include restrictions on the owner's actions, such as the rules imposed by a homeowner's association.

An individual who signs a deed for a parcel of land has a legal right to possess that land, for example, but may not be able to build a shooting range on it because of the potential risks it would pose. In other cases, the holder of the title to a piece of property may own the land but be unable to develop it for environmental reasons.

Deed Restrictions and Covenants

Deed restrictions, also known as restrictive covenants, are limitations or conditions imposed on the use or development of a property. These restrictions are typically outlined in the deed.

Deed restrictions aim to preserve the integrity, value, and aesthetics of a property. For example. think about implications of selling a house; there may be restrictions to respect the current state of a neighborhood. Common examples of restrictions that may be listed in the deed include prohibitions on building additional structures, exterior modifications, or how land can be used.

Somewhat related to deed restrictions are deed covenants. Covenants refer to agreements or promises made by property owners to abide by certain rules or conditions. These are more likely to be voluntary compared to restrictions. Generally speaking, deed restrictions are typically tied to the property deed itself and may be a bit more specific. In contrast, covenants may be part of a larger set of community rules or agreements and may vary in their application and enforcement.

Deed vs. Title

A deed and a title are not the same but they are inextricably linked:

• A deed is a document that transfers the title to property from one owner to another. It describes the property being transferred and names all parties to the transaction. It is signed by all parties and is filed on the official record. All U.S. states require that deeds to real property be filed with the government, although the details vary.
• The title may not even exist in any physical form. It's the concept of property ownership that gives its owner the rights of possession and use. The deed is the proof of that ownership.

The Bottom Line

Deeds are legal documents that transfer ownership of real property from one party to another, containing essential information such as property descriptions, parties involved, and consideration exchanged. They serve as tangible evidence of property ownership rights and obligations.