“Title” and “deed” are the Fred and George Weasley of the real estate world (we see you, “Harry Potter” hive). And like the identical twin wizards, “title” and “deed” get notoriously mixed up all the time.
You wouldn’t be at fault if you thought that title and deed are the same thing. Both are related to homeownership and, honestly, the terms are often used interchangeably. It can be the source of a lot of confusion because, as you might have guessed, title and deed are different things.
A deed is a physical legal contract that transfers ownership of a house or property. A title is the concept of ownership that is granted by the deed. Homeowners can’t “hold title” (a legal way of saying you own something) without a deed that grants them rightful ownership.
When buying a home, transferring the property title from the seller (aka grantor) to the buyer (aka grantee) involves three components:
- The property deed
- Title search
- Title insurance
Let’s dig a little deeper into the differences between property titles and deeds. And as a bonus, we’ll explore title searches, title insurance and the different types of deeds you might encounter.
Ownership Rights From Holding Title
Title is a concept, not a physical document that gets recorded in a municipal office or tucked away in your files. The title is the concept that the title holder has legal ownership of a property. With legal ownership comes a “bundle” of rights. The bundle is made up of five legal rights or privileges:
- The right of possession: You legally own the property.
- The right of control: You control how the property is used, what’s built on it or if you want to rent it out.
- The right of exclusion: You decide who’s allowed on the property – but there are limits to this right. If an officer knocks on your door with a legal search warrant, they have the right to walk in.
- The right of enjoyment: As long as it’s legal, you can enjoy the property as you see fit. Have your interpretation of fun as long as you’re obeying the law and/or following any rules set by your homeowners association (HOA), if applicable.
- The right of disposition: You can dispose of (aka sell) the property to a new owner.
Before you buy a home, you must hire a title company to perform a title search on the property. The title search confirms that the seller has the right to sell the property and checks if anyone else has a claim to the property.
An encumbrance is a legal claim against a property. You may come across different types of encumbrances.
- Lien: It’s a legal claim that uses the property as collateral for a debt. The claim can be an outstanding mortgage, tax debt or a competing claim of ownership.
- Encroachment: This happens when a neighbor builds a structure that encroaches (think: intrudes) on your property.
- Deed Restriction: This means there is a restriction(s) on what you can and can’t do on your property, like types of builds/upgrades or running a small business. These kinds of encumbrances often come from homeowners associations.
- Easement: This means another party (usually a utility company or the general public) is allowed to use part of your property for a specified reason.
A title search can also root out unpaid property taxes, renovation debts and other unpaid bills associated with the home. It’s better to learn about any of this ASAP. You don’t want someone coming to collect on a bill or disputing ownership after you’ve bought the property.
Although you had a title search done, you should protect yourself and your particular property against anyone who might claim ownership or any outstanding debt on the home. This is where title insurance comes in.
Title insurance is normally sold by the company that performs the title search. With a title insurance policy, any claim against the home will be handled by the insurance company. Unlike car or home insurance, title insurance is paid as a one-time fee at closing.
There are two types of title insurance, one for owners and one for lenders. Both are crucial to protecting each party against a claim.
- Owner’s insurance: Owner’s insurance isn’t always required, but it’s in a buyer’s best interest to get it. The insurance policy protects homeowners from any financial claims against the property.
- Lender’s insurance: In most cases, to get a mortgage loan, a lender is going to require that you get lender’s insurance. Lender’s insurance protects the lender from any claim on the title that would affect the loan and its terms.
Types of Deeds
Now, we move on to deeds. Or, more specifically, types of deeds.
House deeds can get tricky because there are a few types. But the vital takeaway is that – no matter what type of deed it is – a deed is a physical document that grants a homeowner (or grantee) legal ownership over a particular property. To tie this all together, this legal ownership is “the title” to the property.
Each deed type offers the grantee different legal protections. There are many types of deeds out there, but we’ll focus on the four most common deeds.
General warranty deeds
A general warranty deed boasts the highest level of defense for a buyer. There are two clauses in general warranty deeds that are worth pointing out. By signing the deed, the grantor (or seller) promises that:
- They have the title.
- The property is free of debts or other past or present encumbrances.
Special warranty deeds
The special warranty deed is a step down in protection for the buyer. The deed guarantees that there were no encumbrances (legal claims on the property) while the grantor owned it. But it doesn’t guarantee that there weren’t any encumbrances under the property’s previous owners.
Bargain and sale deeds
The bargain and sale deed comes with even less protection. It simply indicates that the seller holds title – that’s it.
If you enter into a bargain and sale deed, you’ll get no assurances from the seller about any past or present debts or encumbrances. This type of deed tends to crop up on sales of foreclosed homes or homes that are part of an estate or tax sale.
The quitclaim deed is the lowest level of defense for the buyer. The seller essentially waives (or quits) any claim to title. Quitclaim deeds are usually used in situations where both parties know the property’s history, like a divorce or inheritance.
Homeownership = Title and Deed
The title and deed give homeowners legal ownership of a property and the bundle of rights associated with ownership.
Remember: To own property, you need a legally binding deed that is filed and grants you title to the property.
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The Short Version
- A deed is a physical document that grants property ownership. A title is the concept of ownership
- A title search and title insurance both protect home buyers’ rights
- Holding title gives homeowners five ownership rights: the rights of possession, control, exclusion, enjoyment and disposition