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Grant Deed vs. Deed of Trust

Deed record books

As a homeowner, you may use a deed to transfer ownership or take out a loan on your property. There are several different types of deeds that you may use, but two of the most common are grant deeds and deeds of trust. In this article, we’ll share the different types of deeds, define what a grant deed and deed of trust are used for and what the differences are between them. Consider working with a financial advisor for expert guidance on how to handle real estate matters.

Types of Deeds

There are six common types of deeds and each one serves a specific legal purpose. Which one that you’ll use when transferring ownership depends on several factors of the property, including ownership, history and liens.

  • Quitclaim deed. Quitclaim deeds transfer ownership between familiar parties, such as family and divorced spouses. This deed offers minimal legal protection to the grantee against liens or other debts against the property.
  • Deed of trust. A deed of trust uses a third party to transfer property from one party to another. This trust acts as security against a loan on the property in case the borrower doesn’t make their payments.
  • Warranty deed. There are two types of warranty deeds – general and special. These deeds offer legal protections to the grantor in case there is a problem or defect with the title once it has been transferred.
  • Grant deed. A grant deed transfers the property from the seller to the buyer for an agreed-upon price. It guarantees that the seller owns the property, but doesn’t offer protection against title defects.
  • Bargain and sale deed. Bargain and sale deeds guarantee that the grantor is the title-holder, but does not guarantee that the property is free of debt or liens.
  • Mortgage deed. This is a legal document between a borrower and a lender. It secures the property as collateral and allows the lender to place a lien if the loan isn’t repaid.

What Is a Grant Deed?

A grant deed is a legal document that is used to transfer ownership of real property between two parties for a specific price. It includes the full legal description of the property, the names of the people that the property is being transferred to (grantee) and from (grantor) and the sales price.

Grant deeds guarantee that the grantor is the legal owner of the property. The grant deed states that there have been no title problems while the grantor has owned the property. However, it does not guarantee that the property is free of title defects that happened before the grantor acquired the title. These defects may include:

  • An error in public records
  • Improper signatures of either party
  • An undisclosed lien against the property
  • Boundary disputes between neighbors

What Is a Deed of Trust?

A deed of trust

A deed of trust is a legal document that secures a loan against the property. The deed of trust ensures that the property is collateral for the loan in the event that the borrower does not make their payments. If the borrower does not make the payments then the lender can foreclose on the property. The deed of trust ensures that the lender receives the proceeds of a sale or auction of the property securing the loan.

With a deed of trust, the lender can foreclose on the property and sell it without a court process when a borrower does not pay. Because it does not require a court hearing, a deed of trust is faster and less expensive than foreclosing on a mortgage deed.

Deeds of trust can be assigned without the approval of the borrower. Many lenders sell their loans and assign the deed of trust to the new loan servicer or owner. The borrower is notified of the trnsfer so that they know who to send the payments to going forward.

Differences Between a Grant Deed and Deed of Trust

The major difference between a grant deed and a deed of trust has to do with the presence of a loan and future obligations. Once a grant deed has been executed, the grantor usually is no longer involved with the real estate.

On the other hand, with a deed of trust, the borrower and the lender have an ongoing relationship until the loan is paid off or the property is transferred to another party. When a property is transferred, the lender uses an “assignment of trust deed” to transfer their rights to the new lender.

If a borrower does not make their payments, the lender has the right to foreclose on the property to seek repayment of the loan. With a grant deed, the grantor does not retain these types of rights on the property. Once the transaction is executed, they relinquish all rights.

The Bottom Line

A couple studies the deed to their propertyThere are many different types of deeds that may be used for the transfer of real property. Depending on the circumstances of your transaction, you’ll use one type over another. A grant deed is a transaction between two people or entities without securing the property as collateral. A deed of trust is used by mortgage companies when a homeowner takes out a loan against the property. This document makes it quicker and cheaper for a lender to foreclose on the property if the borrower does not make their payments.

Real Estate Tips

  • When purchasing or selling a property, you’ll use some type of deed to transfer ownership. Many property owners use deeds to transfer ownership of their property into a trust for estate planning purposes. Transferring title may impact your capital gains taxes, so use our capital gains tax calculator before making any changes.
  • Buying or selling a home can impact your financial goals. Speaking with a financial advisor can help you determine the impact and how that changes your savings strategy going forward. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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