Transfer of Property

1. Deeds: The Instrument of Conveyance

A deed is a written instrument that transfers an interest in real property from the grantor (seller) to the grantee (buyer). To be valid, a deed must include: (1) a grantor with legal capacity, (2) a grantee identified with reasonable certainty, (3) a granting clause (words of conveyance), (4) a sufficient legal description, (5) consideration (though nominal consideration is acceptable), and (6) the grantor's signature. The deed must be delivered and accepted to complete the transfer.

There are several types of deeds, each offering a different level of protection to the grantee:

2. Recording and Constructive Notice

Recording is the act of placing a document in the public land records at the county recorder's office. Recording provides constructive notice to the world — legally presumed notice, whether or not anyone actually checks the records. The purpose of recording is to protect the grantee's interest against subsequent claims by third parties.

States follow one of three recording statutes. Race statute: whoever records first wins, regardless of knowledge of prior unrecorded interests. Notice statute: a subsequent purchaser who takes without notice of a prior unrecorded interest prevails over the prior claimant. Race-notice statute: a subsequent purchaser must both take without notice AND record before the prior claimant to prevail.

The fundamental principle: an unrecorded deed is valid between the grantor and grantee, but it is vulnerable to being defeated by a subsequent purchaser who records first. This is why recording at closing is essential.

3. Title Insurance

Title insurance protects the insured (lender or owner) against losses arising from defects in title that existed before the policy date but were not discovered during the title search. Unlike other insurance that protects against future events, title insurance protects against past events. A one-time premium is paid at closing.

There are two types: lender's title insurance (required by virtually all mortgage lenders — protects only the lender's interest up to the loan amount) and owner's title insurance (optional but recommended — protects the buyer's equity). The standard coverage policy protects against matters discoverable from the public records. Extended coverage also protects against off-record matters like survey errors, unrecorded liens, and encroachments.

Common title defects include: forged deeds, undisclosed heirs, errors in public records, missing signatures, improperly recorded documents, and undisclosed liens. Title insurance does NOT cover: defects created after the policy date, zoning violations, or matters known to the buyer but not disclosed to the title company.

4. Adverse Possession

Adverse possession is a method of acquiring title to real property through open, notorious, hostile, continuous, and exclusive possession for a statutory period (typically 5-20 years, varying by state). All five elements must be met simultaneously. The possession must be actual (physically occupying the land), open and notorious (visible enough that the true owner should know), hostile (without the owner's permission — adverse to their interest), continuous (uninterrupted for the statutory period), and exclusive (not shared with the true owner or the public).

Some states also require the adverse possessor to pay property taxes during the statutory period. Tacking allows successive adverse possessors to combine their periods of possession to meet the statutory requirement, provided there is privity between them.

Adverse possession cannot be claimed against government-owned land. Also, permissive use (a neighbor who is allowed to use a driveway, for example) never ripens into adverse possession because the "hostile" element is missing.

5. The Closing Process

Closing (also called settlement or escrow) is the final step in a real estate transaction where the buyer and seller fulfill their respective obligations, documents are signed, funds are disbursed, and title transfers. Key participants include the buyer, seller, real estate agents, lender, closing agent (attorney, title company, or escrow officer), and title insurer.

Important closing documents include the Closing Disclosure (replaced the HUD-1 Settlement Statement for most residential transactions under TRID rules — must be provided to the borrower at least 3 business days before closing), the deed (prepared by the seller's attorney or closing agent), the promissory note and mortgage/deed of trust, and various affidavits.

Proration is the division of ongoing expenses between buyer and seller at closing. Property taxes, HOA dues, and rent are commonly prorated. Expenses are typically prorated as of the closing date. If the seller has prepaid property taxes for the year, the buyer reimburses the seller for the portion covering the period after closing. Utilities are NOT prorated — the seller closes their account and the buyer opens a new one.