The deed is one of the most important documents at a Texas real estate closing. Learn more about what deeds do and how they affect mortgages.
When you buy a home in Texas, you have to sign a large stack of documents. Most of them will be related to your new mortgage loan. Among the documents that the seller will sign is a “deed” that conveys the title of the property to you, making you its official owner. A deed is actually a rather complicated legal document with a long history dating back to pre-colonial English common law. While you don’t necessarily need to know all of that history, it can be useful to know about some of the most common types of deeds in Texas, how they are different from one another, and how they can affect the mortgage process.
What is a deed in Texas real estate?
A deed is a legal document that transfers ownership of real estate from the current owner (the “grantor”) to the recipient (the “grantee”). It becomes part of the public record once it has been signed and filed with the county clerk in the county where the property is located.
At a minimum, the deed should include the following information:
The name and address of the grantor or grantors
The name and address of the grantee or grantees
A description of the property, such as the lot and block numbers or a metes and bounds description
A statement describing what the grantee is providing in exchange for the property, known in legal terms as the “consideration”
A statement describing the rights that the grantor is conveying to the grantee, including warranties that the grantor is providing clean title to the property
A list of any exceptions or restrictions on the property, such as easements, restrictive covenants, or membership in a homeowners’ association (HOA)
A statement describing the obligations, if any, that the grantee is assuming
Most deeds in Texas convey full ownership of a piece of property to the grantee. It is possible for a deed to withhold certain rights from the grantee, but this is not as common in the modern age. Modern mortgage lenders and title insurance providers generally require deeds that convey all ownership rights to grantees.
» READ MORE: What Title Insurance Covers (With Example)
When a deed names more than one grantee, they are all owners of the property. This means that, when they sell the property to someone else, all of them need to sign the deed as grantors. Suppose, for example, that a deed conveys a piece of real estate to A, B, and C. A and B decide to live on the property, while C goes off and does their own thing. Years later, A and B decide to sell. All three of them need to sign the deed. Otherwise, C could still have a legal claim to the property.
A grantee usually does not need to sign a deed, unless they are taking on obligations toward the grantor. If a grantee is assuming the grantor’s mortgage, for example, they might need to sign the deed.
» READ MORE: What are Deed Restrictions and Provisions?
What kinds of deeds are there?
Legally speaking, many types of deeds are possible. Only a few are practical, however, in real estate sales involving mortgages and title insurance.
General Warranty Deed
This is probably the most common kind of deed in Texas real estate sales. It conveys all ownership rights to the grantee, subject to any specific restrictions like HOA rules or an easement. It also provides warranties that the grantor has good title to the property and that they are conveying all of that title to the grantee. This is important because mortgage lenders and title companies need assurance that no one else is going to come along and claim that they own all or part of the property.
Special Warranty Deed
This type of deed conveys all of the same rights as a general warranty deed, but it does not offer as many warranties of clean title. The grantor warrants that there are no other claims to the property from the time that they owned it. They do not, however, warrant that there are no claims from before that time.
Deed without Warranty
A grantor signing this deed is conveying all of the ownership rights to the grantee, but they make no warranties about the title. This type of deed is not very common, and it is usually not a good idea because it lets the grantor off the hook for title defects.
A person who signs a quitclaim deed is stating that they have no ownership interest in a piece of property. This does not mean that they ever had an interest in the property. It only means that the signer is giving up any claim to the property, whether or not they ever had one.
Mortgage lenders and title companies tend to be uncomfortable with quitclaim deeds. While this type of deed, by itself, does not affect the title to a property, it can raise questions about whether anyone else is out there who might have claims.
Transfer on Death Deed (TODD)
This type of deed can be part of a property owner’s estate plan. The grantor signs it during their life, but it only becomes effective when they die. The idea behind this is to allow the grantees to avoid having to go through the probate process to gain title to the property. One major drawback, however, is that a TODD does not take mortgages into account. If a mortgage lender has a lien on the property, which would require payment of the loan balance upon the sale of the property, Texas law gives the lender two years to file a probate claim against the property.
Deed of Trust
A deed of trust is different from the other types of deeds listed here. It is the only “deed” that the buyer signs at closing. Instead of conveying ownership of the property to someone, a deed of trust gives a mortgage lender an interest in the property. The buyer, who in this case is the grantor, is giving the lender a lien with the right to foreclose on the property if they default on the mortgage.
Other Types of Deeds
Other types of deeds are possible, but not advisable. A contract for deed, for example, is similar to a rent-to-own agreement. The buyer makes regular payments to the seller but does not receive title to the property until the payments are complete. If the buyer fails to make payments, the seller can evict them, and they lose their entire investment up to that point. Texas law sets strict requirements for sellers in these types of deals and allows buyers to recover massive amounts of damages if the sellers do not keep up their end of the bargain.
Under English common law, property owners could convey land with a wide range of conditions attached. For example, a grantor could give someone a “life estate,” in which the grantee could “own” the property for the rest of the grantor’s life. Once the grantor died, the property could revert to the grantor’s estate or go to someone else.
A grantor could also conditionally convey a piece of property to someone. X could sign a deed that conveys land to Y, as long as Y does not use the land for a certain purpose, such as opening a business that sells alcohol. If Y opens a bar on the land, X could reclaim the title to the property. These types of deeds are rarely practical in the modern world.
Do mortgage lenders prefer any particular type of deed?
The buyer will need to have a clean title to the property. When you consider mortgage lenders’ risk management priorities, it makes sense that they prefer general warranty deeds over all other types of deeds. They may also accept special warranty deeds as long as title insurance covers the additional risk. All other types of deeds do not provide as much assurance that no one else will come along with a claim to all or part of the property.
Leave the heavy lifting to The Wood Group of Fairway!
Buying a home is a major undertaking. It’s one of the largest investments many people will ever make in their lives. On top of that, it typically comes with a massive amount of paperwork. When making such a significant purchase, it’s important that you understand everything you’ll be signing. The mortgage professionals at The Wood Group of Fairway are here to help guide you through the mortgage process so that you can go to closing knowing exactly what you’re getting yourself into. There are no dumb questions here!