Transcript:
Welcome to the Tax Sale Podcast, where tax sale investing is made easy. My name is Casey Denman, I’m a tax sale veteran, the leading tax sale expert, author of The Tax Sale Playbook, founder of The Tax Sale Academy and I’m your host right here on The Tax Sale Podcast.
Thank you so much for joining me on today’s podcast episode. This is a completely free podcast and is brought to you through and because of The Tax Sale Academy. If you’re looking to learn more about investing in tax defaulted real estate, just head to TaxSaleAcademy.com. Again that’s TaxSaleAcademy.com.
On today’s episode we’ll be discussing deeds. This is not an overly tactical or strategic episode, but it’s one of those things that is so, extremely misunderstood and causes a lot of confusion and mistakes for many people. It’s also, well, THE piece of the puzzle that provides us with ownership. So this is a crucial episode when it comes to understanding how everything ties together.
First off, what is a deed? A deed is the actual document or instrument that conveys real estate from one party to the next. When you buy a piece of real estate this is the document that provides verification of your ownership. It’s also a document that is usually publicly recorded. This means that a seller will sign the deed transferring the property to you, then that document is recorded in public records. In other words, your local county office such as the register of deeds, clerk of the court or recorder’s office will take the document and forever copy it into the public records of that county. This is an important aspect becomes this is the public evidence that a property has changed hands. It’s also what title companies, attorneys, banks and many others will use to verify that you actually own what you say you own. It’s an important instrument.
But the word deed, by itself doesn’t provide us with much too much information about the context of that deed. We know that a deed transfers real estate from one person to the next. What’s in the deed is crucial to understanding exactly HOW that real estate is transferred from one party to the next.
For example, did you know that you can record a deed in many states that doesn’t even really transfer the property at the time it’s recorded? There are deeds that only transfer the property upon the owner’s death, for example. While that’s out of the scope of tax sale training, it does demonstrate that the contents, the language, the verbiage inside of a deed is what’s really important not simply the title or the fact that it’s a deed.
Much of the language inside a deed revolves around the history of that property. Certain types of deeds are utilized as a result of that property’s chain of title. The chain of title includes deeds and transfers from one person to the next, but also includes all events related to that property, such a mortgages, liens, mortgage or lien releases, building notice of commencements, and plenty of other situations. These all attach to the chain of title. The importance of understanding this will make sense as we dive into the different types of deeds.
So up to this point we understand that a deed is the document that transfers real estate. We also understand it’s recorded and provides evidence of ownership. We’ve also touched on the fact that the verbiage inside that deed is powerful, now let’s go over a few different types of deeds.
The most common deed used in typical open market transactions is called the warranty deed. This deed serves to transfer a property from the seller to the buyer and also provides a warranty from the seller to the buyer. Now, as with every deed, the language inside that specific deed is the controlling factor, but most warranty deeds will provide a warranty that the seller is providing clear, marketable title and will defend that title against any claims whatsoever now or in the future.
Here’s what that means: The seller says that the title is clean – from when they purchased it to now. No liens, no mortgages, no issues. Then they’re essentially signing a contract that they’ll provide a warranty to back up those claims. If something pops up, the buyer contacts the seller to solve the issue. If they don’t the buyer then sues the seller. That’s what the language in most warranty deeds allows.
Now, obviously, we know that most people don’t read the paperwork they sign. By signing that warranty deed, even if you think everything is ok in the chain of title, there could still be an outstanding lien from 10 or 15 years ago that you didn’t even know about but are not responsible for. Nonetheless, most sellers don’t have the cash laying around to solve any issues with the chain of title now or in the future. Sellers also die, disappear or go destitute. So the buyer’s protection from that deed is only partially provided for. That’s why we have title insurance that the seller will buy from a title company to back up that warranty deed as most warranty deeds are paired with title insurance on the open market. That’s a topic for another day, but for now, understand that a warranty deed is a warranty from the seller to the buyer that everything’s good.
There are a few different types of warranty deeds in some areas – we have a Corporate Warranty Deed which is issued by a corporation when selling a property. We also have a Special Warranty Deed which makes the claim that the seller warranty that’s during their period of ownership that everything is perfectly fine. And there are a couple of others, but generally they provide some sort of warranty from the seller to buyer.
This is in contrast with something called a Quit Claim Deed. First off, notice that the work it Quit – Q-U-I-T, not quick as in fast. A Quit Claim Deed is a legal document that transfers ownership from the seller to the buyer without warranty. Essentially, the seller is stating that they are transferring WHATEVER ownership they hold in the property to the buyer. If there are liens, typos, or any other issues then that becomes the buyer’s responsibility.
Now, it’s important to note here that you can’t simply go out and start writing Quit Claim deeds to sell your neighbor’s house because you’re only selling your ownership interest, which is none. That’s called fraud and will land you in prison for many, many years. But a Quit Claim deed is used in a variety of situation – perhaps to transfer a property from a personal name to a company name, they’re commonly used in family transactions, in divorce situations and yes, even in open market situations where the buyer is willing to accept the risk of accepting a Quit Claim Deed, often in exchange for a discounted price.
Some people look at Quit Claim deeds as a basic, elementary or unimportant tool. I’ve even had comments before about it being “just” a Quit Claim Deed so it’s not that important. Any deed, including a Quit claim deed is a legal document that is forever recorded in public records against that parcel of real estate and evey single document recorded against a parcel of real estate is extremely important. Never discount something just because of its title.
Now, what type of deed do we receive when we buy a property at a tax sale? Some areas actually utilize Quit Claim deeds, but more often than not we receive a deed that’s very similar to a Quit Claim deed, but with a different title – tax deed, treasurer’s deed, sheriff’s deed, county deed, and a few other names are common. All of these deeds generally serve a very similar purpose to a Quit Claim Deed. The county is transferring to the buyer whatever interest they have received in the property through their tax foreclosure. Nothing more, nothing less. Whatever they foreclosed on and got it being transferred.
The importance of this as a tax sale investor is to first understand what you’re getting and then understand what you’re giving, as in what types of deeds. You’ll receive that Quit Claim Deed or a variety of one that has no guarantees. This means any issues are on you. That’s why it’s so crucial to know how their tax sale laws apply there, which subsequently will tell you exactly what you’re receiving. Then if there are any issues you handle them prior to selling the property. Nearly all tax sale properties come with clouded titles, which, as the name implies, means something is just a little off. The result is that you can’t get title insurance for those properties unless you take additional action. Clearing title is a topic that is of this podcast episode, but it’s important to know this prior to signing a Warranty Deed where you provide a warranty for that chain of title . . . even though it’s clouded.
So you’ll get a deed without any warranty and then it’s up to you what to do with it. You could clear the title and use a Warranty deed OR you could simply sell with a Quit Claim Deed. But at the end of the day, those little documents, those pieces of payer that you receive or sign with the word deed on the top are extremely important and you MUST understand them.
Hopefully this episode has shed some light on understanding what a deed is and how it applies to you and your tax sale business. If it has helped at all, please do us a huge favor and leave some positive feedback on whatever podcasting platform you’re listening to us on right now.
And for more information on understanding deeds, the tax sale business and how to strategize for success just visit taxsaleacademy.com where we teach about all this and much more inside the academy.
Thanks so much for taking the time to listen. We’ll see you next time, righ there on The Tax Sale Podcast. Take care, bye bye.