Hello everybody.  This month, let’s discuss the differences between Quitclaim Deeds and Grant Deeds.  As you will see, Grant Deeds have a surprise ending, or at least an ending that most lawyers might get wrong if they were questioned on the topic.  

Here is the question:  Does a person who gives a Grant Deed to someone else warrant that he or she owns the property described in the Deed?

Let’s begin our discussion with quitclaim deeds because their nature is simpler than that of grant deeds.

QUITCLAIM DEEDS

Deeds are written conveyances of real property.  A quitclaim deed is the most elementary of deeds.  Its essence is that it conveys to the transferee whatever interest the transferor has in certain real estate.  If the transferor does not own the property, then it conveys nothing.  

A quitclaim deed contains no warranties, either express or implied.  The transferor does not even need to own the property he or she quitclaims to the transferee.

So if the transferor does not have to own the property, why would a quitclaim deed even be necessary?  Generally, it is used for two purposes.

First, a quitclaim deed is used by one spouse when the property being conveyed or encumbered is or will become the sole and separate property of the other spouse.  

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 or 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 or she did not join in the transaction.

Second, a quitclaim deed is used when an individual or legal entity desires to renounce any interest he/she/it may have in certain property in favor of another.  In order to clear up uncertainty or disputes as to ownership, individuals as well as corporations, partnerships, and other legal entities, may legally quitclaim title in a property which the transferor does not own. 

 

GRANT DEEDS

About 90% of all real property conveyed in California is transferred by the recordation of a grant deed.  The remaining 10% are typically conveyed by a quitclaim deed, inter-spousal deed, or a court order.

A grant deed is the instrument of preference, particularly with buyers and title companies, for the conveyance of real property.

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 (assuming the legal description will fit on that single page).  

The distinguishing feature of a grant deed is the inclusion of the word “grant” in the document.  That is, “A” grants to “B.”  If “grant” is not included in the instrument, then it is not a grant deed.  It follows, therefore, that the word “grant” will not appear in a quitclaim deed.  

A grant deed for real property typically contains legalese like:  “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 001 .”

Only the grantor’s signature must be notarized for the document to be recorded.  However, the grant deed is valid even without recordation upon the delivery of the deed by the grantor to the grantee.  

Recordation is not a condition of validity.  However, no title company will issue a policy of title insurance insuring the grantee’s title if the grant deed is not recorded.

Also important to know is that California does not recognize a “conditional” delivery of a grant deed.  That is to say, the moment the grantor hands a grant deed to a grantee, then whatever title the grantor had at that time immediately transfers to the grantee.  That is true even though the grantor may tell the grantee that the deed is not effective until some future time or future event.  

For example, a grantor may say that the deed to his daughter and her fiancé is to be effective or valid only if or when the two wed.  That condition is void.  The grant deed becomes effective at the time of delivery even if the bride and groom never marry.

 

Implied Warranties in a Grant Deed

A grant deed contains two, and 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 California Civil Code Section 1113)

  1. The first warranty: The first implied warranty is obvious in one respect, but not obvious in another.  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 also represents that the grantor did not convey an interest (other than full title) in the property to someone else.

For example, “leasing” units in an apartment building by a landlord are conveyances to the tenants of interests in real property.  So if the selling landlord conveys the property to a buyer, the existing leases (previously signed by the selling landlord) would violate the implied warranty in the grant deed.

So what should an AOA member, who owns an apartment building, do so as not to breach the warrant regarding an “interest” in the property?  The short answer is that he or she should type a provision in the grant deed with words to the effect that: “This conveyance is subject to all existing leases and rental agreements entered into between the grantor and the tenants at the property.”  Including legalese of that nature would eschew a breach of the first implied warranty.

  1. The second warranty: The second implied warranty (i.e. the property is free from the transferor’s prior encumbrances), may also be confusing and merits discussion.  If the grantor had previously conveyed an easement across his or her property, such as for ingress and egress to and from a neighbor’s property or for a utility company to run water or power lines across the grantor’s property, then that easement would constitute a breach of the second implied warranty.  In that case, the grantor should type into the grant deed that the conveyance is subject to the easement.

Similarly, if the grantor took out a loan and allowed the lender to record a deed of against the property during the grantor’s ownership, then the grantor should pay off the loan to have the lender remove the trust deed as of the time of the conveyance, or state in the grant deed that it is “subject to” the deed of trust.  Otherwise, the grantor would be in breach of the warranty implied in the grant deed.  

As a third example, if the grantor recorded a restriction in the use of the 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 verbally informs the grantee of the encumbrance which the grantor placed against the property, the grantee’s knowledge of it would not negate the implied 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 that the encumbrance was a cloud on the title.

 

Methods to Avoid a Breach of the Implied Warranties

There are three methods by which a grantor can protect himself/herself 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 off the balance of the loan in exchange for the lender’s concurrent reconveyance of the deed of trust at the close of escrow.

Second, the grantor can specify in the grant deed the specific encumbrance to which the grant deed is subject.

Third, the grantor can include a general exception to the two implied warranties by stating in the deed that the conveyance is “Subject to all covenants, conditions, restrictions, easements, leases, agreements, liens and all other encumbrances of record existing at the time of delivery or recordation of this deed.”

 

GRANT DEEDS: HERE IS THE SURPRISE ENDING!

Returning to the opening question I posed of whether a grantor warrants that he or she owns title to the property purportedly being conveyed in a grant deed, the answer is an unequivocal “No!”  

No verbiage in a grant deed states that the grantor owns (i.e., has title to) the property.  Nor is there any express warranty stating that in a grant deed.  

Further, as we have seen above, neither of the implied covenants in a grant deed warrants or guarantees that the grantor actually owns the property.  

This point was settled as early as 1920 by the California Court of Appeal in Gaffey v. Welk (46 C.A. 385).  There, the seller of the property only owed a 1/4 interest in a parcel of land.  At some point he purported to convey the property by grant deed to a buyer.  But because the seller only owned a 25% interest in the parcel (which was unknown to the buyer), the buyer only received a ¼ interest in the land.

Two years later, after learning that he did not receive title to the entire property, the buyer (i.e., the grantee) sued the grantor for defective title.  The court ruled in favor of the grantor, holding that the grantor was not liable for the defective title. The court determined that the grantor simply did not own 100% of the property at the time he purported to convey it and that he had not warranted in the deed that he in fact owned 100%.

In other words, there is no express or implied warranty in a grant deed that the grantor has any title to the property described in the deed.  The grantor only warrants that he did not previously convey it and that he did not previously encumber it.  Obviously, if a person never owned a property, then he/she could not have previously conveyed or encumbered what was not owned. 

It is because a grant deed does not warrant ownership that it is so important for a grantee to procure a policy of title insurance at the close of escrow, or if there is no escrow, then obtain such a policy when the grant deed is recorded.  

Title companies guaranty that, at the time or recording, the grantee then owns the property (up to the dollar amount of the title insurance specified in the policy, which is typically the purchase price).  If the grantor does not own the property, the title company will discover that and refuse to issue a policy, thereby saving the buyer hundreds of thousands or millions of dollars by not buying the property.

 

CONCLUDING COMMENTS

What is important for AOA members to know is that a quitclaim deed contains no warranties and conveys only the interest, if any, actually possessed by the purported transferor.  

A grant deed contains the two implied warranties discussed above concerning the title to the property, but not that the grantor owns the property described in the deed.

Because a grant deed itself does not warrant ownership of the property by the grantor, all transferees of grant deeds should obtain a policy of title insurance which guarantees that the grantee owns the property upon recordation of the instrument.  Then if it is later determined that the grantor did not own the property, the title company is responsible to the grantee for its negligence in failing to discover that the grantor did not have title to transfer.

 

Dale Alberstone is a prominent real estate attorney who has specialized in real property and resident manager law for 40+ years.  He also serves as a mediator of real estate disputes and is a former arbitrator for the American Arbitration Association and a former Judge Pro Tem. 

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.

The foregoing article was authored in February 2020.  It is intended as a general overview of California law only and may not apply to the reader’s particular situation.  Readers are cautioned to consult an advisor of their own selection with respect to any particular matter.

Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 269 S. Beverly Drive, Suite 1670, Beverly Hills, California 90212.  Phone:  (310) 277-7300.