House Deed vs Title: What’s the Difference?

The complexities of real estate ownership

When you buy a brand-new couch from the furniture store, you don’t have to worry about who owned that couch in the past and if there are any outstanding debts or claims against it. You pay for the piece of furniture, take a receipt, and now it’s yours to nap on or decorate with your favorite throw pillows.

An heir to the former couch owner likely isn’t going to contact you down the road saying that they actually are the rightful owners of said couch, creating problems for you as the new couch owner.

Buying and selling property, on the other hand, can bring up tricky ownership issues, especially if the property was improperly transferred in the past, or liens are owed on it that could encumber the owner’s ability to sell it.

Common title issues can include public records errors, liens (think: refinancing, owing back taxes, or even unpaid contractors), fraud, forgery, unknown or missing heirs, and boundary disputes.

Tricia Brost, a top-selling agent in the Milwaukee area, shares that problems can arise when more than one person has ownership rights. She was involved in a sale in which a brother and sister inherited a property from their deceased parents. Both of their names were on the title. The brother wanted to sell the property and list it right away.

“Before we could sell the property, we had to make sure both siblings signed off on the title so it was free and clear,” says Brost.

To sum up, the legalities around property ownership and transfer are pretty complex compared to most everyday purchases, hence the need for extra layers of verification and documentation.

What is a title? A bundle of rights

Title refers to your right to legal ownership of a home. Taking title generally gives you the right to sleep in the home, host a barbecue there, and put in new flooring if you wish. “Title,” though it sounds like a document you’d find in a three-ring binder, actually refers to a bundle of rights related to owning property. This bundle includes five separate rights which you may alone claim or share with other entities such as your mortgage lender:

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Other terms related to title

You’re likely to hear house title used in combination with these related terms:

Abstract of title

Although “title” is a concept, material facts related to a property’s title are sometimes documented in the form of an abstract.

An abstract of title records your home’s legal history and past chain of ownership. As a homeowner, you may have the abstract of title — potentially a thick stack of paperwork — stored in a file cabinet somewhere.

The abstract of title typically includes a summary of the original grant, subsequent changes in ownership, any encumbrances on the property, and a statement by the person preparing the abstract stating that it is complete and accurate.

According to Richie Helali, a mortgage lending expert with HomeLight Home Loans, an abstract of title is like a laundry list of all of a property’s various owners over time.

“It is something that a title company is going to provide,” he says. “It normally shows up on the prelim report they provide once they start their title work that says ‘Hey, guys — here’s everything we know about the history of the property based on public records.’”

Title search

A title company or real estate lawyer will conduct what’s called a title search as a step in the due diligence period of a home purchase. A title search is a comprehensive evaluation of records, sources, and documents to identify all available and relevant title information about a particular property. The intent of the title search is to determine if anyone may have a claim on the home besides the owner.

Before a buyer can take title to a house, the seller must clear title, or in other words, prove that the title is free of issues such as liens, judgments, or bankruptcies. Essentially, a buyer wants to verify that they won’t inherit any claims on the home once they become the owner and that the seller has the absolute right to sell it.

“The title company presents any issues on a title to the parties involved in a transaction and makes sure that the seller has the right to convey the property,” remarks Omar Kinaan, a top real estate agent and escrow and title specialist in Menlo Park, California.

Most issues with title (like the above) must be resolved before the seller can transfer ownership of the property to the buyer.

If problems are discovered, a real estate agent can be a key resource in hunting down paperwork where needed and making sure debts are paid.

“It’s important for us real estate agents to take a look at the title policies for our clients and assist where needed,” says Brost. “If there’s a document missing, we can reach out and try to help the title company locate it.”

Keep in mind that some claims on the title, such as the primary mortgage or property taxes that haven’t come due yet, aren’t considered problematic or to be a blocker on a sale. These types of claims can be paid out at closing using the home sale proceeds.

Title insurance

Title searches are not 100% foolproof.

Let’s say you’re about to close on the home of your dreams only to discover your seller bought the property through a wrongful foreclosure. Or perhaps you’re loving life in your new digs when a stranger shows up at your door claiming it’s his home and that he never OK’d the sale. Fortunately, such nightmare scenarios are rare. But they also illustrate why title insurance is so important.

As First American Financial Corporation explains: “Even the most skilled title professionals may not find all problems associated with a property. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify.”

Enter title insurance. Title insurance is a one-time premium paid in full at closing that provides coverage against unknown title issues for the entirety that someone owns a home.

“Title insurance really covers your investment and your ownership of that property,” explains Helali. “So if something does come up from years ago on the title that was never found before, you’re usually protected.”

“While a buyer of a property does not have to take out title insurance, in my opinion, that would be silly,” shares Kinaan. “If you don’t have title insurance and there is an infraction on the title or some kind of issue with your ownership, you don’t have an insurance company to protect you.”

Title fees typically amount to 0.5%-1% of the property’s sale price. Note that a title insurance policy does not negate the need for a title search, but it is issued regardless of the title search outcome. Typically the seller will pay for the buyer’s title insurance policy, while the buyer pays for the lender’s title insurance, but this may be up for negotiation.

The percentage of people who receive a payment from their title insurance is low — only about 6%; however, almost all lenders will require lender’s title insurance in a standard transaction. The bottom line is: the risk of hidden defects is still high enough to call for insurance.

What is a deed? A document used for property transfer

A deed is the legal document that conveys the title from seller to buyer.

“I always tell people that a deed is the document that you physically hold in your hand,” explains Brost, the Milwaukee-area real estate agent. “It’s the piece of paper that states that you own the property and that gets recorded after closing.”

Both parties must sign the deed to make the transfer of ownership rights official.

“When the seller goes to sign a deed, their signature is notarized so they can prove that they are the person, or people, who have the right to convey this property to the new owner,” adds Kinaan.

There are various types of deeds. Here are a few of the most common ones:

General Warranty Deed
The General Warranty Deed is most commonly used in traditional home sales and provides the most protections for buyers. It means that you, the owner, have clear title and a right to sell the property, and no knowledge of any unforeseen issues that might come up with the title for the life of the property. It also says that no one else has rights to own the property.

Special Warranty Deed
A Special Warranty Deed is similar to the General Warranty Deed with one exception — it only promises clear title for the time you’ve owned the home. It’s generally used for commercial real estate transactions and is also known as a Covenant Deed.

Grant Deed
Like both types of warranty deeds, a Grant Deed shows that you have clear title to sell and are unaware of anything that might impact the title. But it doesn’t include the warranty that you’ll defend the title against other people who may end up having claims to it after the sale takes place.

Quitclaim Deed
A Quitclaim Deed offers the least amount of protection for a buyer. It’s normally used when a property owner gifts a house to someone else. The Quitclaim Deed transfers rights and ownership to the buyer, but without any guarantee that the seller is actually able to do so. Oftentimes, even if the seller doesn’t have the legal right to sell the house, the buyer wouldn’t be able to take any recourse against the seller after the fact.

Bargain and Sale Deed
If your home is being sold in a tax sale or foreclosure, the property may be sold with a Bargain and Sale Deed. This means that the seller doesn’t need to clear title and there are no protections for the buyer. For example, if you’ve got liens on the property, they stay with it when you sell. The buyer is responsible for cleaning everything up after the sale.

House deed vs title: Key points to remember

So that’s the nitty-gritty on deeds and titles. It’s a lot to digest, but remember these key points, and you’ll be in good shape:

A deed and title are closely related — you need both to make a legitimate sale or transfer of property. Having a deed without a title is a bit like buying a new car without getting the keys. You won’t get very far without them.

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