Introduction: Common Questions About Deeds
Purchasing real estate can be intimidating because of all the jargon and legal requirements involved in the process. Understanding some of the fundamental legal concepts can help you overcome that intimidation to feel more confident and informed in your decisions.
One of the essential elements of a real estate transaction is the deed—a written document that transfers ownership of property to a person or entity.
To that end, let’s explore some of the most common questions about deeds.
Deeds and Co-Ownership in Pennsylvania
In Pennsylvania, there are three forms of real property ownership that can be recorded on the deed if you are buying property with one or more individuals.
- Joint Tenants
A joint tenancy is a form of co-ownership where the owners must own equal shares of the property. The unique aspect of a joint tenancy is the right of survivorship. This means that if one co-owner dies, his or her share passes entirely and automatically to the remaining co-owners.
The benefit of a joint tenancy is its simplicity and efficiency. Once a co-owner dies, the remaining co-owners do not need to make any changes to the deed and the property does not need to be probated.
For example, if you owned 50% of a parcel of land in a joint tenancy with a business partner, and he died, you would then have a 100% share in that parcel with no requirement to change the deed.
However, you may still want to update the deed so that your ownership is unambiguous.
- Tenants by the Entirety
A tenancy by the entirety can exist only among married couples. Here, each partner owns a 100% interest in the property. If one spouse passes away, the remaining spouse already owns a 100% interest in the property, so there is no need for the property to be probated. A tenancy the entirety also protects marital property from being pursued by creditors.
Generally, when a married couple in Pennsylvania purchases a property it is presumed to be owned as a tenancy by the entirety.
However, if an unmarried couple purchases a home and then later marries, the deed does not automatically convert the form of ownership to a tenancy by the entirety. Only by changing the deed can a married couple get the benefits of tenancy by the entirety. Our firm strongly recommends making this change which will protect both parties against potential creditors for a relatively low fee.
- Tenants in Common
A tenancy in common is more flexible than a joint tenancy. Shares in a tenancy in common may be unequal, can be freely sold, and can also be passed down to heirs.
Pennsylvania presumes a tenancy in common where a property is purchased by multiple owners—even if this form of co-ownership is not explicitly stated on the deed.
However, failing to note each person’s interest in the property on the deed could result in all individuals owning an equal share, even if the parties invested unequal amounts in the property.
Consider this example: Matt invests $80,000 in a rental property and his partner Jim invests $20,000, but the deed doesn’t record their unequal shares. Matt might be expecting 80% of the rental income, but Jim could credibly make a claim that he deserves 50% of profit because the deed did not record their unequal shares in the property.
That’s why educating yourself about the contents of the deed before completing a transaction can help prevent disputes from arising down the line.
The Most Common Deeds
There are three common deeds you’re likely to come across in a real estate transaction. Let’s break each down.
- General Warranty Deed
This is the broadest type of deed and provides the buyer with the most protection. In a general warranty deed, the seller promises that the property is clear of all debts, liens, and encumbrances.
Importantly, the buyer promises to defend the property against claims from anyone and for the entire history of the property.
So, if there is a claim brought challenging title to the property, or if there is an undisclosed lien on the property dating back a decade, the seller will be obligated to defend against the claim and indemnify the buyer.
- Special Warranty Deed
The special warranty deed offers a narrower set of protections to the buyer. Here, the seller offers protection against claims on the property only for the period that the seller owned the property.
This is one of the most common deeds, as sellers are often wary of promising to protect the property from claims arising before their ownership.
- Quitclaim Deed
The quitclaim deed offers the least protection to the buyer. This deed transfers any interest that the seller may have in the property, but offers no guarantees as to rightful ownership.
Buyers should generally be cautious of transactions where title is being transferred under a quitclaim deed. Regardless of the type of deed, we strongly recommend purchasing title insurance on the property to protect your investment against all prior liens.
Quiet Title Actions
An action to quiet title is a proceeding where a party seeks to establish the true owner of a property.
Quiet title actions appear in various contexts—including to challenge a fraudulent deed—but are ultimately about “quieting” competing claims to a property.
Sometimes title insurance companies will refuse to insure title when a property was purchased through a sheriff’s sale because of potential competing claims to the property. In this case, the buyer could proactively bring an action to quiet title and establish sole ownership of the property.
Deed Transfer Post-Death
After a person dies, their assets are inventoried and, collectively, they form the decedent’s estate. The distribution of assets from the estate is overseen by a court-supervised process called probate.
How a deed for real property transfers after someone’s death depends on whether they had a will or whether the person died intestate (without a will).
- Transfer by Will
If someone is the beneficiary of real property in a will, the deed does not automatically transfer to them. First, the will must be validated by the court. Then, the beneficiary must seek an executor’s deed.
An executor’s deed transfers ownership of the property from the decedent’s estate to the beneficiary. Only by receiving the executor’s deed can the beneficiary guarantee full legal title to the property.
Failing to obtain the executor’s deed will hinder the ability of the owner to sell or obtain a mortgage on the property since title to the property may be considered clouded.
- Intestate Transfer
If someone dies without a will, the probate court will appoint an administrator to locate the heirs of the estate. Pennsylvania has succession laws that govern the order of family members who are entitled to receive assets from the estate.
Even if you know that you will be the heir to the family house, you do not automatically receive the deed and title once someone passes away. Instead, the administrator must first settle all debts of the estate, including any on the property—such as a mortgage.
If all the debts of the estate are settled and the house does not need to be sold, the next step is to obtain an administrator’s deed.
The administrator’s deed transfers ownership of real property to an heir. As with the executor’s deed, failing to obtain an administrator’s deed may affect the heir’s ability to sell or mortgage the property
Conclusion
Making sure that a deed accurately reflects your ownership in a property is the best way to protect your investment. Our office can assist you in clarifying any issues you may have with your deed. Contact us to learn more at 215-717-2200.