Almost everyone knows that buying property involves risk. Many times, this risk is beyond either the seller’s or buyer’s control. A fire can turn a mansion into a veritable heap of ashes in only minutes, and a proposed highway extension can transform a near-worthless piece of pastureland or other real estate into a gold mine. Both these situations, and others like them, may cause either the buyer or seller to wonder “what if.”
The wistful “what if” may turn into a sentiment that cannot be repeated on a family-friendly website if the risk was within the party’s control. An undiscovered tax lien can ruin plans to re-sell property to a developer, and an unexpected easement, which means that a third party has rights to some of the property, often ends building and renovation plans before they even get off the blueprints.
Some buyers and sellers, especially those who do not routinely deal in real estate transactions, may be unfamiliar with the different types of deeds and the implications for each one; and indeed, the type of deed can have a tremendous impact on the type of risk.
Deed of Trust
Although these documents are often associated with mortgages, any property transfer that involves obligations to be fulfilled at a later date may involve a deed of trust. Instead of the entire purchase price, the buyer pays only a portion of it and promises to pay the balance later. The deed goes to a trustee, who has no power whatsoever unless the buyer defaults on the obligations; at that point, the trustee or a substitute trustee may foreclose and take the property.
In residential mortgage transactions, some people do not realize that there are two documents: a deed and a note. A divorce transfers legal title to the house or other property, but it does not affect the note. So, if both a husband and wife signed the note, they are both financially responsible for the lien, even if one of their names is erased from the title; moreover, if the owner spouse seeks a loan modification, the non-owner spouse must give consent. Normally, the only way to remove a non-owner spouse’s name from the note is to refinance it.
These documents are often used to transfer property in divorces and in other situations where no money changes hands; quitclaim deeds are also used between family members or in other relationships where there is a high degree of trust. These deeds are not used very often because the seller makes no warranties whatsoever in quitclaim deeds. Instead, the buyer only receives the interest that the seller had.
Most cash transactions use warranty deeds. These documents contain a number of commitments and guarantees, including:
- Unencumbered title,
- No defects,
- Duty to defend a quiet title action, and
- Duty to pay any damages.
A general warranty deed guarantees that there is no cloud on the title, like a mechanics’ lien, mortgage lien, or tax lien; a special warranty deed is effective only during the period the seller actually held title to the property.
Contact Experienced Lawyers
Instead of leaving your next real estate transaction to chance, reach out to an experienced Naperville real estate attorney from the Fitzgerald Law Firm, P.C. We routinely handle matters in DuPage County, Will County, and nearby jurisdictions.