When you buy a new home, you're going to hear a lot of talk about deeds and titles. These two terms, like many other real estate terms, can be somewhat confusing. Oftentimes, they're even confused for one another. Following are explanations of both terms and why you need to know what they are.
Title
The title of a property is a bundle of legal rights given to a person or party in regard to that piece of property. The title serves to:
- Identify the individual or individuals who own the piece of property and can make use of it (these can be separate parties)
- Outline how the property can be used (residential use, commercial use, etc.)
- Show that the property was sold and purchased legitimately
- Outline the property lines and how the property can be divided
There are two types of titles: equitable title and legal title. The equitable title gives a person rights to use the property, while the legal title indicates actual ownership of the property.
Having equitable title usually means that you will be acquiring the legal title at some point. For example, if you have agreed in principle to
buy a home, but have not yet closed on it, you are said to have equitable title. During this period of time, you have the right to use the home, but you do not yet have the legal title. Equitable title can also come attached to a lease.
In this case, having equitable title means that the buyer is given the right to purchase the property during the time of the lease. The buyer must purchase the property within that time frame in order for the amount of money he or she paid toward the lease to be applied to the purchase price.
Deed
In regard to real estate, a deed is a document that shows the transfer of the ownership of property from one person or party to another. There are four common types of deeds.
- Warranty deed – This is the most common deed. It acts as a guarantee that certain claims about the property that is being transferred are, in fact, true. If the property does not meet those specified standards, the transaction can then be nullified. For example, if the sellers claim that the foundation of the house is completely intact, but it is discovered later that there is a crack in it, the sale can be nullified or renegotiated.
- Bargain and sale deed – Under this deed, no guarantees about the property are made. This is most commonly used by court officials or someone who holds the property by force of law, rather than by title. For example, properties that were seized due to failure to pay taxes.
- Deed of trust – This can be used as an alternative to a mortgage, though only in some jurisdictions. In this case, the property is not transferred directly from seller to buyer. The title is instead transferred to a trust or title company, known as a "trustee," and is held as security for a loan. The title is transferred to the new owner only when the loan has been paid off.
- Quitclaim deed – This is not an actual deed, but a document that acts to eliminate a person's rights regarding a piece of property. This is most commonly used in situations of divorce, where one party is giving their rights to the other party in regard to property that was once co-owned. Other occasions that make use of quitclaim deeds are when properties are given as gifts, transferred between family members, given over to a business, or in other special circumstances.
Simply put, the title of the property shows that you are the owner, and the deed shows how the property passed from one party's possession to another's. While all this paperwork might be stressful and somewhat confusing, once it's all finished, it's sure to be satisfying to see your name at the top of the title to your new home.