Hello everybody. My discussion this month about deeds will brief you on an important point of law about which most lawyers, as well as many real estate attorneys, are misinformed. The issue is, “Immediately prior to the moment a seller delivers a Grant Deed to a buyer for a parcel of real property, does the seller have to own the property?” Stated in a slightly different manner, does the seller who hands a Grant Deed to a purchaser represent to the buyer that he has title to the property he is purporting to convey?
Before addressing that issue, let’s first talk about the general nature of deeds, and in particular, quitclaim deeds and grant deeds.
Deeds are written conveyances of real property. A quitclaim deed is the most elementary of deeds. By its nature, a quitclaim deed conveys to the transferee whatever interest the transferor has, if any, in certain real estate. It contains no warranties, either express or implied.
A quitclaim deed is most frequently used by married persons when the property being conveyed or encumbered is or will become the sole and separate property of one spouse alone. If a title company is insuring the new title, it will typically require the non-owner spouse to execute a quitclaim deed in which that non-owner conveys his/her entire right, title and interest in the property, if any, to the other spouse. If the non-owner spouse has no interest, the deed does not constitute a conveyance of real property. Nevertheless, it assures the title company that the non-owner spouse will not, at a later time, seek to set aside the sale or encumbrance on the basis that he/she did not join in the transaction.
Quitclaim deeds are also used when an individual desires to renounce any interest he/she may have in certain property in favor of another. An individual may legally quitclaim property he/she does not own to a third person.
I venture to say that at least 95% of all real property conveyed inCaliforniais transferred by the recordation of a grant deed. The remaining 5% is typically conveyed by a quitclaim deed, inter-spousal deed, or a court order.
The instrument of preference, particularly with buyers and title companies, is the grant deed.
Customarily, a grant deed is a one-page document which contains the name of the grantor, the name of the grantee, and the legal description of the property. The distinguishing feature in the legalese of such a deed is the use of the word “grant.” If the “grant” is not included in the instrument, then it is not a grant deed.
One would expect a grant deed to contain legalese similar to the following: “Daniel Harris hereby GRANTS to Patricia Faller the following described real property in the City of Los Angeles, County of Los Angeles, State of California: Lot 1 in Block 1 of Tract No. . . . .”
Only the grantor’s signature must be notarized for the document to be recorded. However, the conveyance is valid even without recordation upon the delivery of the deed from the grantor to the grantee. Recordation is not a condition to validity, although it is a condition to any title company’s issuance of a policy of title insurance in the grantee’s name.
Incidentally,Californiabans “conditional delivery” of deeds. That is to say, the moment a grant deed is handed to a grantee, title transfers to the grantee even though the deed is not recorded and even through the grantor may tell the grantee that the deed is not valid unless and until the occurrence of some specific future event.
A grant deed contains two, but only two, implied warranties: (1) The grantor did not previously convey the property or any interest therein to anyone else and (2) at the time of the conveyance, the property is not burdened by any encumbrances “done, made or suffered by the grantor”. (See Civil Code Sec. 1113.)
The first warranty is obvious in one respect, and confusing in others. The obvious part is that the grantor did not previously convey title to the property to someone else. What is not so obvious is the fact that the first warranty provides that the grantor did not convey an interest, other than title, in the property to someone else.
For example, when an AOA member sells an apartment building in which all of the units are leased, it would be wise for the seller to insert a provision in the grant deed that the conveyance is “subject to all leases and rental agreements entered into between the grantor and tenants at the property.” Because a lease is a conveyance of an interest in the property, delivery of a grant deed which does not refer to the rented units might violate the first of the implied warranties.
The second implied warranty (i.e. free from encumbrances) also merits discussion. If the grantor had previously conveyed an easement across his property, such as for ingress and egress to and from a neighbor’s property, then that easement could constitute a breach of the second implied warranty. Similarly, if the grantor allowed a lender to record a trust deed against the property during the grantor’s ownership, then the grantor must remove the trust deed as of the time of the conveyance or make the grant deed “subject to” the deed of trust. Otherwise, the grantor will be in breach of the warranty implied in the grant deed. As another example, if the grantor recorded a restriction in the use of his property during the grantor’s ownership (such as in “CC&Rs”), then that restriction would constitute an encumbrance against the property and violate the grant deed.
Remarkably, even if the grantor informed the grantee of the encumbrance which the grantor placed against the property, the grantee’s knowledge does not negate the warranty in the grant deed. As explained in Evans v. Faught, 231 C.A.2d 698, a grantee is entitled to rely on the implied covenant even if he had actual knowledge of the encumbrance if the encumbrance was a cloud on the title as opposed to a physical condition apparent from a view of the premises.
There are three methods by which a grantor can protect himself when using a grant deed. First, if an encumbrance is one which can be removed, the grantor should consider doing so at or prior to the close of escrow. For example, if a first trust deed loan exists against the property, the grantor can pay (usually through escrow) the balance
due on the loan, in exchange for the lender’s reconveyance of the deed of trust concurrently with the close of escrow.
Second, the grantor can specify in the grant deed the specific encumbrance to which the deed is subject.
Third, the grantor can include a general exception to the warranty by stating in the deed that the conveyance is “subject to all covenants, restrictions, conditions, easements, leases and other encumbrances of record existing at the time of delivery or recordation of this deed.”
GRANT DEEDS: THE REAL SURPRISE
Returning to the opening issue I posed of whether a grantor warrants that he/she has title to the property purportedly being conveyed by a grant deed, the answer is an unequivocal and resounding “NO.” Neither of the implied covenants (discussed previously) warrant the grantor actually owns the property.
This point was settled as early as 1920, when the California Court of Appeal decided in Gaffey v. Welk (46C.A. 385). There, the grantor initially received titled by a forged deed. Thereafter, he purported to convey the property by grant deed to the grantee. When the grantee later sued the grantor for defective title, the court held that the grantor was not liable because he had not previously made a conveyance. In other words, there is no implied covenant that the grantor has any title to the property that he purports to convey when delivering or recording a grant deed. He only warrants that he did not previously convey or encumber it.
What is important to remember is that a quitclaim deed contains no warranty and conveys only the interest, if any, actually possessed by the transferor. On the other hand, a grant deed contains implied warranties concerning the title to the property, but not that the grantor owns the property he is purporting to convey.
Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 36 years. He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association. He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.
Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell. An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity. His firm is rated A+ by the Better Business Bureau. For additional information, google “Dale S. Alberstone.”
The foregoing article was authored on November 1, 2012, and is intended as a general overview of the law and may not apply to the reader’s particular case. Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.
Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1801 Avenue of the Stars, Suite 600, Los Angeles, California 90067. Phone: (310) 277-7300.