There’s a lot of jargon in the real estate industry, especially during the home closing process, where the legal and financial details of a real estate transaction are nailed down. Two such phrases are title and deed.
These often confused terms refer to the ownership of a property but serve different purposes: The title is an abstract term referring to ownership, while the deed is the legal document that transfers ownership from one party to another.
Understanding the similarities and differences between these terms and where they come into play in a home sale is necessary for buyers and sellers alike to ensure a smooth transfer of ownership from one homeowner to the next.
A title is a legal term that refers to ownership of something. When you hold the title to a home, you have legal rights, ownership control, and responsibility over that home. Titles can be held by corporations, partnerships, organizations, trusts and, of course, individuals, or two or more people.
For comparison, you may be more familiar with a car title. When you lease a car, your leasing company owns the car and holds the title until you pay off the lease. Then, the title becomes yours and you own the car. The same concept applies in real estate.
The stakes of a title — like the legal ownership and rights over a property — makes them an especially important part of the homebuying process. As such, title searches and insurance act as safeguards against any title disputes that could jeopardize someone’s homeownership.
Imagine you’ve lived in your home for 10 years when someone claiming to be the grandson of a previous owner shows up, saying the home is inherited property, willed to him at his grandparents’ death. If the claim proves legitimate, and you don’t have title insurance, you could lose your property and the money you’ve already paid towards your mortgage. Title insurance helps cover your potential losses in occurrences like these.
After making an offer on a home, a title search will uncover any limitations on the property, like easements or liens. Either the buyer or seller can initiate this process, but any lender will require it to ensure the seller has the legal right to sell the property and that nobody can make a claim to the title later.
If a seller owes money to a contractor, is behind on property taxes or mortgage payments, they may not be entitled to transfer property ownership. In other words, they may not be able to sell their property. As such, a title search is an essential component in any real estate transaction.
A clean title search doesn’t mean that there isn’t the potential for future title disputes. And because titles hold so much legal and economic weight, many lenders require buyers to purchase title insurance. This policy protects homeowners and lenders from financial loss if future title issues arise.
A previous ownership claim is not common, but title insurance is a negligible amount compared to the rest of your mortgage, so it’s smart to buy. You might even be able to negotiate to have the seller pay for it for you as part of seller’s concessions.
The deed is the legal document that transfers a property title from one person to another. The person selling or transferring property rights (the grantor) signs the deed to officially move legal ownership from themself to the buyer (the grantee).
So, while a title is the ultimate designation of ownership, the deed is the document that proves transfer of ownership from a previous owner to the current owner.
There are several types of deed that are used for different purposes:
Titles and deeds are part of the same process of transferring ownership of property. However, there are a few key aspects that differentiate them. Here’s a review their key components:
Titles and deeds share a purpose — to document and designate ownership — and one can’t exist without the other. A deed documents the transfer of title. You can’t have a deed if there was never an agreement to transfer the title.
In other words, a deed represents the right of a new owner to claim legal property rights from a previous owner. But you can only have those legal property rights if you are the ultimate holder of the title. Even if the bank holds title, you are still a partial title holder, giving you many rights of ownership.
In real estate, the title and deed will come into play at different points of the closing process. Early in the closing process, a title search will examine public records to see if there are any easements, liens, or conflicting property claims.
The public records searched will include previous deeds, mortgages, liens, wills, divorce settlements, and other public documents that describe property ownership. All of these documents will help a title examiner create a title abstract that determines whether or not a property has a clear title. That is, whether the current title holder can legally sell the property.
Once the examiner approves a clear title, you’ll proceed with closing. During the final closing date, you’ll receive the deed. When the seller signs the deed, it transfers the title and ownership of the property to the buyer. Then, the buyer signs to pay off the old mortgage loan (if applicable) and inherit the title.
Finally, the biggest difference between a deed and a title is that a deed is a physical document; a title is abstract.
The deed to a property is an official written document that in most states are required to be recorded in a courthouse or assessor’s office. It must be in your physical possession after receiving it from a previous owner. The title is simply a conceptual term referring to the rights of property ownership conveyed by the signing of the deed.
Think about the “title” of a book. Can you hold it? No, but you can hold the book itself and the pages within. Similarly, you physically hold a deed to a house, but the title is intangible.
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