Real Estate Law: The Importance of Choosing the Right Type of Deed and Form of Ownership

Recently, a real estate agent contacted me because their clients had a court ordered judgment attach against their property. The problem was that the judgment was only against the husband and since they were husband and wife shouldn’t that prevent the judgment of one spouse attaching against the house both spouses own.? To answer the question and determine if the judgment can legally attach against the property, we must look at the language in the Deed.

One of the most important—but often overlooked—things to consider as an owner of real estate is the type of Deed you have. The Deed is the title to your real estate and can be drafted using different language to accomplish very specific family and estate goals, as well as judgment protection goals. This blog explores the varies types of Deeds and forms of ownership so that you can, for yourself or your clients, select the right Deed for your or their goals. Let’s first look at the common types of Deeds.

General Warranty Deed: Probably the most commonly used Deed, this transfers title from the seller to the buyer where the seller is generally warranting the title to the property. That is the seller warrants that the title is clear and unencumbered in insurable form from the time the seller owned the property and for periods from before the seller owned the property from prior owners of the property.  If a claim against the title arises, even for periods before the seller owned the property, the seller must defend the buyers from those claims. This type Deed offers the most protection for the buyers.

Special Warranty Deed: In a special warranty deed, the grantor only promises that no claims have been made against the property during the period of the seller’s ownership. It does not warranty any time period before that. This is also sometimes called a limited warranty deed and only covers the buyers for claims that arise during the seller’s ownership period.

Quitclaim Deed: This type Deed offers the least amount of protection and warranty of title for a buyer. Indeed, the sellers are only conveying whatever interest the seller has in the property, if any.  The sellers make no promises that the title is free and clear of claims and encumbrances.

Life Estate Deed: This Deed is a wonderful Deed to be used for estate planning purposes. A Life Estate Deed is a Deed where the owner of real property grants to themselves the right to live in a property for the entire time of their life and then upon their death the property automatically conveys to the “Remainderpersons” named in the Deed. This transfer becomes automatic at the time of death and completely avoids probate. The owner may also grant to themselves during their lifetime “With Powers” or “Without Powers.” If the Life Estate Deed is With Powers the owner may sell the property at any time, refinance, rent it or do any other lawful act with the property they so choose. If the Deed is Without Powers the owner must get the agreement of the “Remainderpersons” named in the Deed to do anything with the property that impacts the title to the property. (There are some tax reasons for selecting With or Without Powers so you should consult your accountant).

In any of these types of Deeds the buyer can select the form of ownership they desire. These are “Sole Owner,” “Tenants in Common,” ‘Joint Tenants,” and “Tenants by the Entireties.” Each has a specific estate and/or judgment planning impact that should be deliberately considered. Sole Owner is clear in that the buyer owns the property by themselves and no other person or entity has any interest in the property. Tenant in Common is for two or more owners and provides that if one of the owners dies their interest passes to their estate and not to the other owners. Also, there is no judgment protection and any judgement against an owner attach to their share interest. Joint Tenants is for two or more parties but provides for rights of survivorship. That is if one owner dies their interest passes to the surviving owner and not their estate heirs. Again, there is no judgement protection here so a judgement against one owner will attach to their share interest. Finally, there is Tenants by the Entireties. This form of ownership is reserved for husband and wife and provides for rights of survivorship and judgement protection.

The question presented here is how did the husband’s judgement attach if they were husband and wife as owners of the property? The answer is in the Deed and the timing. The couple bought the home when they were engaged but not yet married. Because of that they could not take the legal form of ownership Tenants by the Entireties even though the settlement company put that in the Deed. As a matter of law their form of ownership reverted to Joint Tenants and the judgement attached to their home.

The simple fix here would have been once they were married change their Deed to reflect their marriage and ownership form as Tenants by the Entireties and re-record their Deed. This would have cured the defect in the Deed and protected the family home from the judgement.

For more answers to your real estate contract law questions, be sure to call Velocity Title’s new Real Estate Contract Questions Hotline at 1-800-MY-RE-LAW, or 1-800-697-3529.

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