Real estate like every industry has its own special set of jargon. Many of the terms we use in real estate today originated in England during the 1600s. These antiquated terms can create confusion for buyers and sellers during a transaction. Title vs. deed are two real estate terms that are often confused or misunderstood. At face value, these words seem to mean the same thing but that’s not the case. Title and deed while related, describe two separate aspects of ownership.
In a nutshell, title is a concept used to describe a bundle of rights afforded to a homeowner or titleholder.
The deed or warranty deed is an actual document that conveys or names the titleholder(s) of a property.
The deed is the buyer's guarantee that the seller actually owns the property free and clear with no liens, encumbrances, easements, or clouds on the title. The deed contains the names of the grantor (seller) and grantee (buyer) along with the complete legal description of the property. The deed is signed by the grantor, generally in front of a notary public in order to acknowledge the signature(s).
In most real estate purchases, the buyer uses some type of financing from a lender. In order to protect their investment, the lender uses the property as collateral. In order to do this, the lender uses a deed of trust which is different than the warranty deed. The deed of trust is prepared by the lender and secures the promissory note to the property. It outlines the terms, conditions, and details of the loan, including the principal balance, maturity date, and interest rate. The deed of trust also serves as an agreement between the borrower and lender allowing a third-party to serve as a trustee.
The purpose of the trustee is to hold the property until the loan is paid off. While the trustee holds legal title to the property, the buyer maintains the actual title to the property as well as the responsibility to maintain that property. The ultimate purpose of the trustee is to be in a position to start the foreclosure process for the lender if needed.
While many states like Colorado use the deed of trust which names the lender or mortgagee as the beneficiary of the trust, other states eliminate the need for a trustee and create a lien on the property by the lender. Both of these documents work to protect the lender's investment. Whether you receive the deed at purchase or have a lien levied is determined state by state.
States that use a deed of trust have a faster foreclosure process while title theory states will go through the longer judicial foreclosure process. With a deed of trust, in the event the borrower defaults on their loan, the lender will deliver the deed of trust to the trustee, at which point the trustee is instructed to sell the property. Once all of the required notices are been posted and procedures have been followed, the property sells at the trustee’s sale and the balance of the loan is repaid.
After closing, the deed of trust (the document that secures the promissory note to the property) is filed with the local clerk and recorder's office. These documents now become part of the property's chain of title. The chain of title documents the historical transfers of a title to a property.
Remember that until the borrower pays off the loan, they have no legal title to the property. Instead, they enjoy the exclusive legal right to occupy the property. This includes the implied bundle of rights associated with the title.
If the borrower fails to repay the loan, the terms of the deed allow the "trustee" to foreclose and start the sale process.
Once you have made the final payment on your mortgage, the lender should send a release of deed to the trustee. The lender should also prepare a deed of reconveyance. This document should state that the buyer has no further obligation and the loan has been paid in full.
This should be enough to start the process of putting the actual deed in your hands. In normal circumstances, you should receive the deed in the mail a couple of weeks after the release is filed.
In some cases lenders fail to release their liens, so you might need to give them a call. The lender should have a release of lien department. They can research your account and deal with filing the appropriate paperwork.
The terms title and deed are often thought of as the same thing, but their legal meaning is quite different. Once you understand the relationship between the two, you’ll have a better idea of your rights and responsibilities as well as a clearer understanding of what's going on at the closing.
The easiest way to think about the difference between the two is a title is a legal way of showing that you own the rights to something (full or partial), while deeds on the other hand, are actually the legal documents that transfer title from one person to another.
Additionally, the documents that you obtain after your real estate purchase will differ depending on whether you live in a title theory state or a lien theory state. When you own a property entirely, you will possess both the deed and title.