Buying a home, or a new home, is a dream come true for most Americans. We spend a great deal of time looking for our perfect homes. We decorate and improve our properties. They are our pride and joy.
But to real estate lawyers, the purchase of a home is merely a transfer of ownership rights, reflected in the language they use to describe the parties involved. Legal language can make even the simplest topics seem more complicated than they really are.
This article will simplify some of the language. Let’s break down the difference between grantors and grantees.
Who Are Grantors And Grantees?
In general, a grantor is someone who transfers a property right to a grantee. In a real estate transaction, the grantor is the current holder of the property right, or in other words, the seller. The deed, which transfers ownership, is the grant.
The grantee is the party who receives the transfer of the property after, in the case of sale, a closing occurs. In other words, the grantee is the buyer.
A lessor/lessee is a type of grantor/grantee. In this case, the lessor is the grantor of a temporary right to possession of a property in return for rent payments, and the lessee accepts that right to possession and agrees to pay according to the terms of the lease.
A mortgagor/mortgagee is another example of a grantor/grantee. Here the lender originates the mortgage while accepting a security interest in the property, and the borrower accepts its terms and agrees to repay.
The Relationship Between Grantors And Grantees
For the most part, grantors and grantees are strangers to one another who are conducting an arm’s length transaction – the sale/purchase of a property – with one another. Their relationship is defined by the document that binds them.
The Transfer Of Deed Or Title
Property rights are usually governed by state law. Each state uses its own terminology and has its own quirks. In most states, the difference between a deed and title is that the title refers to an abstract concept while the deed is a filed and duly recorded document. But the general principles tend to hold throughout the U.S.
To ensure a buyer is getting exactly what they intend, title searches are performed prior to closing. The title company traces deeds back through the history of recorded property ownership to establish a chain of title. This should determine whether the current owner owns the property free and clear of claims and encumbrances. Title insurance protects home buyers in case something goes undiscovered.
There are four types of deeds that comprise most residential real estate transactions.
General Warranty Deed
The general warranty deed is the very highest level of protection for a grantee. The grantor offers a deed that warranties the title they’re conveying is theirs free and clear of any liens or other encumbrances and that the seller will defend the buyer in court should any such claim be made.
Special Warranty Deed
Sounds better, but it’s not. A special warranty deed is a less beneficial transfer of ownership to a prospective buyer/grantee because it guarantees only that there has been no encumbrance of the property during their ownership of the property. It’s typically used by temporary owners, like lenders, who acquire the property through foreclosure and then try to sell it quickly.
Deed In Lieu Of Foreclosure
A deed in lieu of foreclosure is a deed signed by a homeowner/grantor who faces foreclosure and chooses to avoid the process by granting ownership of the property to the mortgage owner. It’s a bit of a hybrid model because lenders and homeowners already have a relationship with the mortgage, but it’s a business relationship centered around the property at stake.
Special Purpose Deed
This type of deed is used for those signing a deed in an official capacity. It means the person is not offering a personal warranty, but simply carrying out their defined functions, like an executor administering an estate or a sheriff conducting a property auction. Therefore, should the grantee/buyer face a claim against title, they can sue the office, but the grantor won’t be liable for defending the grantee or any damages awarded.
Title Insurance And Warranty Deeds
Do you need title insurance if you are the grantee of a general warranty deed? The answer is yes.
Your lender will require you to purchase title insurance anyway for its benefit. Buying an add-on policy for your benefit is relatively cheap, and in most cases, a seller can be persuaded to shoulder the extra cost so they never have to worry about backing up their warranty personally.
Title insurance pays for all costs arising out of a title claim, and some may not have originated on the seller’s side. Even with a general warranty deed, the grantee would have to hire a lawyer to enforce the warranty provisions of the deed. That legal action is costly, and you won’t get their costs reimbursed if the grantor is dead or insolvent by the time the claim is raised.
The Bottom Line
Being sure of what you're buying when you make one of the biggest purchases you're likely to make in your lifetime is very important, particularly when you don’t know much about the seller. Understanding the new language and procedures you’ll be encountering will help you feel more confident as you move through the home buying process.
Have questions? Get started today at Rocket Mortgage® or speak to a Home Loan Expert by calling (800) 785-4788.