For most farmers, their land is their most valuable and important asset. There are many legal terms associated with real estate and real estate transactions. These terms are often used, but sometimes not well understood.
The following is a discussion of some of the more common real estate terms and what they mean:
Quit claim deed. Many people mistakenly think a quit claim deed is a “quick” claim deed. Nothing about a quit claim deed is faster or more expedient than any other type of deed. With a quit claim deed, the grantor of the real estate is not making any guarantees they have good title to the land. They are basically saying, “I am transferring my interest in the land to you, but I am not guaranteeing what interest I have in the land.” Anyone buying land should avoid a quit claim deed. We most often use quit claim deeds when transferring property between family members or correcting an error on a previously recorded deed.
Limited warranty deed. The grantor in a limited warranty deed provides some guarantees. This type of deed promises there were no claims against the property while the owner owned it. Basically, the seller is saying, “I guarantee I did not cause a title issue while I owned it, but I cannot guarantee anything before I owned it.” Limited warranty deeds are often used in commercial transactions.
General warranty deed. A general warranty deed is the best deed to use if you are the buyer. This type of deed guarantees the buyer is receiving a title free of debt, claims or other encumbrances regardless of when the title issues may have occurred. While the general warranty deed is good for the buyer, the seller should take caution. If a title problem occurs, even if the title problem was caused long before the seller owned the land, the seller will be liable. It is good practice for the seller using a general warranty deed to have title insurance involved in the transaction. If a problem does arise with the title, the title insurance company will remedy the situation or compensate the buyer rather than the seller.
Fiduciary deed. These types of deeds are most commonly used when land is sold from an estate or trust. The executor or trustee, the fiduciary, does not actually own the land but is legally charged with acting on behalf of the estate or trust. The only guarantee that this type of deed makes is that the person signing the deed has authority to transfer the property and execute the deed. In all other respects, the fiduciary deed is similar to the quit claim deed.
Mortgage. Mortgage is a very commonly used term, but most people do not quite understand what it is. When taking a loan to buy property, the borrower gives a promissory note to the lender. The promissory note is the legal document that states how much money is owed and how the loan is to be repaid. The borrower owes the money to the lender based on the promissory note alone.
The mortgage is used to ensure the lender is paid by allowing the lender to foreclose on the mortgaged property if the borrower defaults on the promissory note. During the foreclosure, the mortgaged property is sold, and the lender will be paid from the proceeds with any extra going to the property owner.
The lender will, as best it can, make sure it has at least enough property mortgaged to cover the debt on the promissory note. A mortgage is similar to a deed in that it has a similar format, is executed in the same manner and is recorded with the county recorder.
Moore is an attorney with Wright & Moore Law Co. LPA. Contact him at 740-990-0751 or [email protected].