DAVID J. WILLIS ATTORNEY
Copyright © 2011. All rights reserved worldwide.
PART ONE – INTRODUCTION
What is a Deed?
A deed is a written document that conveys title to real property. It is to be distinguished from a promissory note or a real estate lien note (same thing) which is a promise to pay a sum of money to a lender; and a deed of trust which provides the lender with remedies, including foreclosure, if a borrower defaults on a note (similar to a mortgage in other states). The deed, note, and deed of trust are the three principal documents in most Texas real estate transactions.
There is no “standard form” for a deed, although Texas does have certain rules that apply if a deed is to be valid. For instance, the intent to convey property must be clear from the wording; the property must be sufficiently described; and the deed must be signed and acknowledged by the grantor. Having said this, it is not true that all deeds are created equal. In particular, when it is a grantor’s intention to accomplish a specific objective and limit liability in doing so, the form and wording of a deed can be critically important. Always consult a real estate attorney when contemplating the transfer of property.
This article will briefly describe different types of deeds that are commonly used for different purposes in Texas. It is suggested that you also consult our article on a related topic, Co-Ownership of Property in Texas, for a discussion of tenancy in common (which has no rights of survivorship and is generally presumed in Texas) and joint tenancy (which has express rights of survivorship – i.e., the surviving co-owner inherits the deceased co-owner’s interest). Married buyers should always consider taking title as joint tenants with rights of survivorship.
Investors should also look at our article, Deeding Property into an LLC.
Must Deeds be Recorded to be Valid?
No. There is no requirement that a deed be recorded in the county clerk’s real property records in order to be valid – only that it be executed and delivered to the grantee. When this is done, the transfer is fully effective between grantor (seller) and grantee (buyer). Recording merely gives notice to the world of the transfer and, of course, establishes priority in the event an unscrupulous seller gives more than one deed to the property.
Recording makes it easier for title companies to research and insure the chain of title. Title companies insist on recording for this reason. Recording will also inform the taxing authorities where they should send the ad valorem tax bill.
Executing and delivering a deed without immediately recording it can be a useful, inexpensive estate planning device – what this author calls “the deed in the drawer.” If, for example, a parent wants to insure that her property is transferred without probate or other difficulty upon her death, then she could sign a deed now that would be held and not recorded until she passed. This is entirely legal.
One more comment relating to the timing of deeds – the doctrine of “after acquired title.” If I give you a deed today to property that I do not yet own, it of course has no effect; but if I actually acquire that property next week, then the deed I gave you comes to life and the property is yours.
Must Deeds Show the Actual Purchase Price?
No. In fact, in Texas, it is customary to recite that the consideration paid is “Ten dollars and other valuable consideration.” Why? Confidentiality. While recording gives the public notice that a transaction concerning the property has occurred, and therefore preserves the chain of title, it is traditionally believed that it is not the public’s business what the purchase price was. Of course, the parties can always choose to show the actual price if they wish.
Who Signs the Deed?
The deed must be signed before a notary by the seller. The buyer’s signature is not required unless the deed contains specific agreements on the part of the buyer that the buyer makes in exchange for the transfer. In order for these to be enforceable, they should be set out in the deed.
Sale of Property Subject to Existing Indebtedness
Can the title to property be transferred if money is owed to a lender? Yes. Title and debt are different concepts – apples and oranges. A “subject to deed” refers to acquiring title to property while expressly providing that the buyer assumes no liability for existing debts and liens. It is a device often used by investors in order to buy property, fix it, and then flip it for a profit – all without taking liability for any debt.
The concept may be better understood by reading the following sample “subject to” clause that can be included in the deed: “This conveyance is made subject to any and all indebtedness of Grantor and liens against the Property, including but not limited to that certain indebtedness and liens securing same evidenced by a note in the original principal amount of $____, dated ____, executed by Grantor and payable to the order of ____, which note is secured by a vendor’s lien retained in deed of even date recorded at Clerk’s File No. ____in the Official Records of Real Property of ____ County, Texas, and is additionally secured by a deed of trust of even date to ____, Trustee, recorded at Clerk’s File No. ____ in the Official Records of Real Property of ____ County, Texas. Grantee does not assume payment of this or any other indebtedness of Grantor.”
Sale of Property “As Is”
In certain circumstances, a grantor may be willing to sell only on an “as is” basis. In this case, “as is” refers to the condition of the property rather than the condition of the title. In other words, an “as is” deed may also be a warranty deed – the two are not mutually exclusive. Express and implied warranties of title may be present; however, there are no warranties made as to the state or condition of the land or any improvements upon it.
This is a sample “as is” clause in a deed: “The Property is conveyed and accepted “AS IS,” in its present physical condition, with all faults and defects, known or unknown, and without warranties, express or implied, except for warranties of title as may be expressly set forth and limited herein.” The “as is” nature of a conveyance is typically more important in commercial transactions, where the “as is” clause can easily be a page or more long.
PART TWO – TYPES OF DEEDS
General Warranty Deed
The term “warranty deed” is loosely used to refer to a deed that contains both express and implied warranties (There is also a “deed without warranties” which is discussed below). A general warranty deed is the preferred form of deed for a buyer because it expressly warrants the entire chain of title, all the way back to the sovereign, and binds the grantor to defend against any title defects, even if those defects were created prior to the grantor’s period of ownership.
Here is a sample general warranty clause: “Grantor binds Grantor and Grantor’s heirs, executors, administrators, successors and assigns to warrant and forever defend all and singular the Property to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the Reservations from Conveyance and the Exceptions to Conveyance and Warranty.”
What are implied warranties? One is the “covenant of seisin” – that the grantor presently owns the property that is conveyed, ie., he has not previously conveyed it to someone else. Another is the “covenant against encumbrances” which refers to undisclosed liens that diminish the monetary value of the land. Sec. 5.023 of the Texas Property Code spells out these implied warranties. Note that the scope of any warranty may be limited by a “subject to” provision which might state, for example, that the conveyance is being made subject to a boundary dispute involving a certain section of the property. A “subject to” provision of this type protects the grantor against a claim for breach of warranty.
General warranty deeds are common in the sale of residential property.
Special Warranty Deed
In the case of a special warranty deed, title is warranted only from the grantor – and no further back than that. The grantor’s liability for title defects is therefore expressly limited to his period of ownership.
This is a sample special warranty clause: “Grantor binds Grantor and Grantor’s heirs, executors, administrators, successors and assigns to warrant and forever defend all and singular the Property to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, when the claim is by, through, or under Grantor, but not otherwise, except as to the Reservations from Conveyance and the exceptions to Conveyance and Warranty.”
Commercial properties are typically conveyed by special warranty deed. Deeds into an LLC may be either with general or special warranty, depending on the situation.
Deed Without Warranties
A deed without warranties is just that – a conveyance of real property without warranties, express or implied, as to any matters whatsoever. This is a sample of a no-warranties conveyance clause: “Grantor, for the consideration and subject to the Reservations from Conveyance and Exceptions to Conveyance and Warranty, grants, sells, and conveys to Grantee the Property, together with all and singular the rights and appurtenances thereto in any way belonging, to have and to hold it to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns forever, without express or implied warranty. All warranties that might arise by common law as well as the warranties in Section 5.023 of the Texas Property Code (or its successor) are excluded.”
Why would anyone make or accept such a conveyance? The usual case is when the parties are unsure as to the extent of the grantor’s interest, and/or if the grantor is willing to enter into the conveyance but only on the condition that he assumes no liability for doing so. A deed without warranties may transfer the entire interest in a certain property, or it may not. The parties assume the risk of this uncertainty. A deed without warranties is therefore the “lowest” form of Texas deed – but it can pass good title.
Clients will often call a lawyer’s office and say they need a “quitclaim deed.” The lawyer’s response should almost always be “No, you don’t.” Why? For one reason, a quitclaim is not a true deed at all; it merely conveys whatever interest the grantor may have in a certain property – if he has any interest at all. Secondly, from a practical standpoint, title companies disdain quitclaims and will frequently ask that a true deed be obtained from one or more persons in the property’s history. One does no favor to the chain of title by inserting a quitclaim into it.
If a grantor is unable or unwilling to provide any warranties, then a deed without warranties should be used instead of a quitclaim.
Assumption deeds are usually deeds that also contain covenants of general or special warranty. The difference is that assumption deeds expressly provide that the grantee will assume liability for and promise to pay one or more existing liens against the property.
The consideration clause in an assumption deed might read as follows: “Ten dollars ($10.00) and other valuable consideration, the receipt and value of which is hereby acknowledged, including Grantee’s assumption of and promise to pay, according to its terms, all principal and interest remaining unpaid on that certain note (the “Assumed Note”) in the original principal amount of $_____, dated ____, executed by ____ and payable to the order of ____ (said payee together with its successors and assigns being referred to herein as “Lender”), subsequently assigned to and now held by ____. The Assumed Note is secured by an express vendor’s lien and superior title retained in deed of even date recorded at Clerk’s File No. ____ in the Official Records of Real Property of ____ County, Texas, and is additionally secured by a deed of trust of even date (the “Deed of Trust”) in favor of ____, Trustee, recorded at Clerk’s File No. ____ in the Official Records of Real Property of ____ County, Texas. As further consideration, Grantee promises to keep and perform all of the covenants and obligations of the Grantor contained in the Assumed Note and the Deed of Trust and to indemnify, defend, and hold Grantor harmless from any loss, attorney’s fees, expenses, or claims attributable to a breach or default of any provision of this assumption by Grantee. Grantee shall commence payments on the Assumed Note on or before the next regular due date under the Assumed Note.”
It may be useful to separate the concept of title from the concept of debt. They are related but different, and they can be separated – at least when discussing the respective obligations of grantor and grantee. One can take title to property without becoming liable on the underlying debt. Debts secured by liens against the property, of course, remain in place even if title is transferred.
Under an assumption deed, the grantee becomes obligated to the grantor – but, it should be pointed out, not to the lender, since the grantee has not signed the note. Similarly, the grantor has not been released from the lender’s note, unless the lender has approved the assumption and expressly released the grantor in writing.
An assumption deed is usually accompanied by a deed of trust to secure assumption, which enables the grantor to make payments to the lender if he discovers that the grantee has failed to do so, and then recover these “advancements” from the grantee. This enables the grantor to proactively preserve his credit. If he is not reimbursed by the grantee, the grantor may foreclose.
Can assumptions occur without the lender’s consent? Yes, and they often do, in spite of the “due on sale” clause that is usually contained in paragraph 18 of the lender’s deed of trust. For more information, see our companion article on this website, Due on Sale Clauses in Texas.
A wraparound transaction or “wrap” is a form of creative seller-financing that leaves the original loan and lien on the property in place when the property is sold. The buyer makes a down payment and signs a new note to the seller (the “wraparound note”) for the balance of the sales price. This wraparound note, secured by a new deed of trust (the “wraparound deed of trust”), becomes a junior lien on the property. The buyer makes monthly payments to the seller on the wraparound note and the seller in turn makes payments to the original lender. The original lender’s note is referred to as the “wrapped note,” and it remains secured by the “wrapped deed of trust.” The buyer receives a “wraparound deed” which places title to the property in the name of the buyer.
The consideration clause in a wraparound deed reads something like this: “Ten dollars ($10.00) and other valuable consideration, including execution of a note (the “Wraparound Note”) of even date in the principal amount of $____, executed by Grantee, and payable to the order of Grantor. The Wraparound Note is secured by a vendor’s lien retained in this Wraparound Deed and by a Wraparound Deed of Trust of even date from Grantee to David J. Willis, Trustee.”
A detailed Wraparound Agreement should accompany the wraparound deed and other wrap documents. Wraps are complex transactions that should be undertaken only with the guidance of an attorney who is knowledgeable in this area. See our companion article on this website, Wraparound Transactions in Texas.
Foreclosure Deed or Trustee’s Deed
A trustee’s deed is delivered by a lender’s trustee to the successful bidder at a foreclosure sale. The lender often bids the amount of the debt (plus accrued fees and costs) and acquires the property in this way. If the sale generates proceeds in excess of the debt, the trustee must distribute the excess funds to other lienholders in order of seniority and the remaining balance, if any, to the borrower.
Prop. Code 51.009 states that a buyer at a foreclosure sale “acquires the foreclosed property ‘as is’ without any expressed or implied warranties, except as to warranties of title, and at the purchaser’s own risk; and is not a consumer.” It is also certain that the deed itself will contain its own disclaimer along the following lines: “THE PROPERTY IS CONVEYED AND ACCEPTED “AS IS,” IN ITS PRESENT PHYSICAL CONDITION, WITH ALL FAULTS AND DEFECTS, KNOWN OR UNKNOWN. THE TRUSTEE MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, ORAL OR WRITTEN, AS TO TITLE, POSSESSION, QUIET ENJOYMENT, MERCHANTABILITY, MARKETABILITY, USABILITY, HABITABILITY, FITNESS OR SUITABILITY FOR ANY PARTICULAR PURPOSE, OR ENVIRONMENTAL CONDITION OF THE PROPERTY OR AS TO ANY OTHER MATTER RELATING TO THE PROPERTY. IMPLIED WARRANTIES AND ORAL STATEMENTS ARE EXPRESSLY DISCLAIMED AND EXCLUDED. THE TRUSTEE SPECIFICALLY DISCLAIMS THE VERBAL OR WRITTEN STATEMENTS OR INFORMATION INCLUDING REPRESENTATIONS AND WARRANTIES THAT MAY HAVE BEEN MADE OR PROVIDED BY AGENTS, BROKERS, INVESTORS, OR OTHER THIRD PARTIES.”
Even with these limitations, a foreclosure deed is probably the cleanest title obtainable, even though it does not eliminate taxes owed. For more information, see our article Foreclosures in Texas.
Deed Incident to Divorce
This is actually a special warranty deed that contains the following additional clause: “Consideration for this transaction is the division of property pursuant to a Final Decree of Divorce dated ____ entered in Cause No. ____, IN THE MATTER OF THE MARRIAGE OF ____AND ____, in the ____ District Court of ____ County, Texas.” The deed may also include an “owelty of partition” that creates a lien in favor of the grantor to secure payment of a certain sum from the other spouse. This is used to equalize the overall division of property.
Note that in a divorce the divorce decree is not sufficient to transfer title. A special warranty deed and usually a deed of trust to secure assumption should be executed.
Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is a specialized instrument designed to transfer property to a lender in satisfaction of a debt and in exchange for a full and complete release. The clauses contained in such deeds are highly technical. They begin with a general statement such as “This Deed is executed and delivered by Grantor and accepted by Grantee in lieu of Grantee demanding and collecting the Indebtedness and in lieu of the necessity for Grantee to give notice of default, notice of intent to accelerate, notice of acceleration, notice of posting for foreclosure, and conduct of a foreclosure sale of the Property.” Much additional detail is then added.
Few lenders today accept these as a means of avoiding foreclosure. The reason is that the foreclosure process itself is advantageous to the lender – it cleans up the title by eliminating junior liens, and it establishes a deficiency (the difference between the price at foreclosure and the balance on the note) for which the lender can then sue the borrower. For more information, see our companion articles Foreclosures in Texas and Deeding Property to the Lender.
A correction deed relates back in time to the original deed which contained some sort of error or mutual mistake. The original deed may have been any of the types of deeds discussed above. The correction deed corrects the mistake but leaves the other terms of the conveyance intact. The most common mistake is an error in describing the property. No new consideration is required for a correction deed. Generally, a correction deed should be signed by both grantor and grantee.
Corrections deeds are appropriate for correcting errors only. If the parties intend to alter fundamental terms of the original conveyance, then a new instrument – not a correction deed – is required.
Here is a sample correction deed clause: “This deed is made as a correction deed (“Correction Deed”) to that certain General Warranty Deed (“Corrected Deed”) dated ____, executed by Grantor herein to Grantee herein, and recorded under Clerk’s File No. ____in the Official Records of Real Property of ____ County, Texas, for the purpose of correcting the following: [e.g., error in the property description]. This Correction Deed correctly describes the Property that was intended to be conveyed and should have been conveyed by the Corrected Deed. Other than this stated correction, this Correction Deed is intended to restate in all respects the Corrected Deed, and the effective date of this Correction Deed relates back to the effective date of the Corrected Deed.”
Title companies will occasionally require that a correction deed be executed if their researchers discover an error in a previous deed.
Deeds Involving Co-Ownership
This topic is covered in our companion article on LoneStarLandLaw.com, Co-Ownership of Property in Texas. Topics such as tenancy in common and joint tenancy are discussed.
A fraudulent deed is a void deed . . . but action must generally be taken in order to establish that the deed is fraudulent. Sec. 51.901 of the Texas Government Code requires a county clerk to take action if there is “a reasonable basis to believe in good faith that document or instrument previously filed or recorded or offered or submitted for filing or for recording is fraudulent.” One way to trigger such action is for the aggrieved party to file an affidavit which includes the property’s legal description, send a copy of the affidavit to the perpetrating party, and demand that the fraudulent deed be canceled. If this strategy is unsuccessful, a suit alleging fraud (both common law fraud and statutory fraud under Business & Commerce Code 27.01) and requesting recision and/or a declaratory judgment must be filed.
Note also Sec. 12.002 of the Texas Civil Practices & Remedies Code which provides that a person who knowingly and intentionally files a fraudulent lien or claim against real property may be held liable in civil district court for the greater of $10,000 or actual damages, exemplary damages, and recovery of attorney’s fees and costs.
There are other types of deeds – mineral deeds, deeds of a life estate, etc. – but these are less common and are not discussed in this article.
The variety of deeds along with the choice of different clauses that can be inserted to affect the conveyance and alter the liability of the parties make it advisable to a consult a real estate attorney – and do it early in the process. It is best to discuss the conveyance with an attorney prior to signing a sales contract – since the contract can obligate the parties to one sort of deed or another. After a contract is signed, your attorney may no longer have the leeway to insert clauses that may be to your advantage.
Note on Legal Fees: This office charges $175 for a warranty deed. Per-page recording fees (usually about $28, depending on the county) are not included. We need a copy of your existing deed and the name and address of the proposed grantee. These can be emailed to LoneStarLandLaw@aol.com or faxed to (832) 201-5321. Mention any special requirements you may have.
Information in this article is proved for general educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is expressly retained in writing to do so.
Copyright © 2011 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, http://www.LoneStarLandLaw.com.