Real Estate Transfers

Whether directly or indirectly, almost everyone has experience with the transfer of rights in real property.  There are some important things to know about conveying (transferring) rights in real property.  Using the term “rights in real property” is intentional and an important distinction to make at the beginning.  One does not own real property; one owns rights in real property.  For example, one may own the present possessory interest in a house for his or her lifetime while another owns the future possessory interest, which is called a life estate.  One may have a right to cross another’s property to access her own, which is called an easement appurtenant.  One may give another the right to enter the property and foreclose for not complying with a promissory note, which is secured by a deed of trust or mortgage.  One may have permission to fish in another’s pond or hunt on another’s farm, which is called a license.  Or, one may sell mineral rights, but retain rights to the surface.  There are multitudes of ways rights in real property can be divvied up, these are just a few examples.

Law school professors often use an analogy to describe these various rights as a “bundle of sticks.”  Property rights are like a bundle of sticks in that each right in real property is represented by a stick with the whole bundle of sticks representing all the rights in the real property.  Each individual stick can be pulled from the bundle and given to a different person.

A deed is the instrument used to transfer the rights in real property from one party to the other.  In Tennessee, a deed is generally considered to pass “all the [] interest of the grantor” unless the intent to pass less is stated in the deed in express terms. Tenn. Code Ann. § 66-5-101.  There are some common titles found in deeds.  A “Grantor” is the party conveying the property to another. A “Grantee” is the party to whom the property is conveyed.

A properly drafted deed will contain the parties to the deed, the legal description of the real property, the derivation clause (the portion of the deed that describes from whom grantor(s) received title), the signature of the grantor(s), a notary block wherein a notary attests the grantor(s) signing the deed was who she said she was; and, generally, an attestation clause wherein a grantor will attest to the actual consideration paid for the property (this is so the proper transfer taxes can be calculated).

The deed may or may not contain covenants, or warranties, of title.  There are six covenants.  The first covenant is the covenant of seisen.  The covenant of seisen assures the grantee that the grantor has the “quantity and quality” of what is being conveyed in the deed. Berryhill v. Swinea, 1997 WL 653913 at * 5 (Tenn. Ct. App. 1997).  The second covenant is the covenant of the right to convey, which simply means the grantor is promising he has the right to convey the property. Kenney v. Norton, 57 Tenn. 384 (Tenn. 1873).  The third covenant is the covenant against encumbrances which basically provides indemnity to the grantee should “an outstanding adverse title, charge, burden or interest constituting an encumbrance” appear. Halford v. Gunn, 2007 WL 2380300 at *4 (Tenn. Ct. App. 2007).  There may be disclosures in the deed disclosing any encumbrances to which the property is subject.  These three covenants are often referred to as present covenants.

The three remaining covenants are often referred to as future covenants.  The covenant of quiet enjoyment assures grantee that no one will destroy the quiet and beneficial enjoyment of the use of the property. Couch v. Hall, 412 S.W.2d 635, 637 (Tenn. 1967).  The covenant of warranty assures the grantee the grantor will protect the grantee against anyone who claims paramount title in the property. Hopkins v. Lane, 17 Tenn. 79, 79 (Tenn. 1836).  The covenant of further assurances assures that the grantor will take affirmative steps to defend and cure any defects in the title.

There are three types of deeds: special warranty deed, general warranty deed, and a quitclaim deed.  A special warranty deed only warrants what has happened during the grantor’s ownership. Tenn. Code Ann. § 66-5-103(1)(B).  A special warranty deed may or may not explicitly state the covenants above by name.  Tennessee law allows a special warranty deed to state the following, or other equivalent words: “I covenant that I am seized and possessed of this land, and have a right to convey it, and I warrant the title against all persons claiming under me.”  In simple terms, a grantor in a special warranty deed is saying “I only warrant what has happened since title vested in me and that is all.”  Often a special warranty deed is used when the grantor has foreclosed on the property and bought the property at the foreclosure sale or when a financial institution is conveying property it acquired through foreclosure.

A general warranty deed provides the most protection for a grantee and the most liability for a seller.  A seller, however, should only convey property with a general warranty deed if the seller is confident in his title and preferably after a title exam is performed.  Here again, a general warranty deed may not spell out all six of the covenants but instead simply state: “I hereby convey the following tract, and I warrant the title against all persons whomsoever” or similar language. Tenn. Code Ann. § 66-5-103(1)(A).

The final deed is a quitclaim deed.  A quitclaim deed has no covenants.  When property is conveyed by a quitclaim deed, the deed will state the following or something similar: “I hereby quitclaim all my interest in the following land.” Tenn. Code Ann. § 66-5-103(2).  In a quitclaim deed, the grantor is basically saying “I do not know what interest or rights I have in this property, but whatever they are, I am conveying them to the grantee.” A quitclaim deed provides the most risk for the grantee, but the least risk for the grantor.

A simple conveyance of real property can carry many ramifications for the grantor and grantee.  That is why it is important to understand the differences between the types of deeds and the protections or liabilities they impose on the respective parties.  This is also why it is important to ask a trusted real estate attorney which deed best fits a particular transaction.