This article written by Dave Phillips, November 26, 2007.
A continuation of the estates in land. This article will focus on The Fee Simple Determinable and The Possibility of Reverter.
At the end of the previous article regarding the life estate and the reversion, I asked the reader to consider the fee simple absolute as the mother ship of all our estates. The fee simple absolute is the purest form of land ownership. I will restate the definition of the fee simple absolute, as this is necessary for our current discussion: The fee is synonymous with holding or ownership. Simple refers to an estate that is inheritable. Absolute discloses that there are no apparent impediments to the title. We also learned that whenever a piece of the fee simple absolute is carved out, there is a creation of new estates. All the estates, when added together, must add up to a fee simple absolute, thereby satisfying the calculus of estates.
Now let me twist the knife a little. There are situations in which a fee simple estate will not be absolute. In other words, the fee simple will be conditioned or impeded. When a fee simple is conditioned or impeded, we call this a defeasible fee simple. There are 3 ways in which a fee simple may be made defeasible: (1) by the creation of a fee simple determinable, (2) by the creation of a fee simple upon condition subsequent, and (3) by the creation of a fee simple subject to executory limitation. This article will examine the first of these; the fee simple determinable. I will also discuss its counterpart, the possibility of reverter.
First off, what is a fee simple determinable? A fee simple determinable is a fee simple estate that is made defeasible by a condition attached to the conveyance, which condition, if violated, triggers an automatic reversion to its original grantor.
Let's say that Bill Smith is the owner of Blackacre in fee simple absolute. Bill Smith then conveys Blackacre to Shirley Thomas, so long as the land is used for residential purposes, and if the land ever ceases to be so used, the property shall automatically revert back to Bill Smith and his heirs, in fee simple absolute. Don't panic! Let me discuss this conveyance as it is written. Bill conveyed a fee simple estate to Shirley. However, this fee simple estate is not considered absolute because there is a condition on the title. The condition is found in the language 'so long as the land is used for residential purposes'. This condition destroys the fee simple absolute. The additional language 'and if the land ever ceases to be so used, the property shall automatically revert back to Bill Smith and his heirs, in fee simple absolute' discloses that the current possessory estate is a fee simple determinable. Explain this Dave!
If the condition in our example is ever broken, the property will automatically revert back to Bill Smith. It is this automatic reversion that defines the fee simple determinable. To complete our example, let's say that Shirley constructs a restaurant on the subject property after she acquired title from Bill. The construction of the restaurant is a violation of the condition that the property be used only for residential purposes. The property would automatically revert back to Bill and Shirley's interest would be destroyed.
What happens if the condition is never broken? If the condition is never broken, the property will continue to descend through Shirley's family tree. A fee simple determinable creates a condition, which condition may or may not be broken; only time will tell. If the condition is not broken, the fee simple determinable functions much like a fee simple absolute. The reader should also understand that the fee simple determinable can be very harsh on its grantee. If Shirley violates the condition, Bill has an automatic present right to possess the property and to dispossess Shirley of her interest; no court proceedings are necessary.
A fee simple determinable is not a fee simple absolute. As a result, there must be an interest following the fee simple determinable. As you probably surmised by the title of this article, this interest is the possibility of reverter. The possibility of reverter is a future interest and therefore falls within the jurisdiction of future interest law. This future interest is a present right to future possession.
In our example, we created a current possessory interest of a fee simple determinable in favor of Shirley. We call Bill's retained interest a possibility of reverter. The name says it all. There is a possibility of reverter in favor of Bill. The property will not revert back to Bill unless the condition attached to the fee simple determinable is violated. Compare this to my last article in which I discussed the life estate and the reversion. There, the reversion was certain to take effect upon the death of the current life estate holder. In our current example of a fee simple determinable, the reversion is not certain to vest in Bill, therefore Bill's interest is classified as a possibility of reverter. So you see, when a fee simple absolute owner creates a fee simple determinable estate, the original owner, Bill, is not certain to regain any current possessory interest in Blackacre.
Summary, I have discussed two additional estates in this article: (1) the fee simple determinable, and (2) the possibility of reverter. Both of these estates are created by carving a piece out of the fee simple absolute. The fee simple determinable represents the current possessory interest, while the possibility of reverter represents the possible future possessory interest. For this future interest to become possessory, the condition attached to the fee simple determinable must be violated.
See you next week.
dave
Monday, November 26, 2007
Saturday, November 17, 2007
The Life Estate and the Reversion
Welcome back for a continuation of the estates in land. This article will focus on the Life Estate and the Reversion.
Reference the previous article in which I discussed the calculus of estates. Remember that the calculus of estates is represented by a line. The entire line represents a fee simple absolute. Let me demonstrate this visually (line _________________ = fee simple absolute.) This is a clean line with no impediments to title. Well, what happens if we break this line into two or more segments? As mentioned, if the fee simple absolute line is broken, the fee simple absolute is destroyed, resulting in the creation of new estates. Let me show you how the fee simple absolute line can be broken by the conveyance of a Life Estate.
Let's say that Bill Smith is the owner of Blackacre in fee simple absolute. Bill Smith then conveys a life estate to Shirley Thomas. Note that Bill Smith conveyed a life estate, he did not convey his entire fee simple absolute. How does this affect the ownership of the property? To answer this question we must determine what new estates are created by Bill's transfer to Shirley.
First off, what is a life estate? A life estate is true to its name. It is an estate in land that endures for the life of its owner. The moment the holder of the life estate dies is the moment the life estate is terminated. A life estate is exclusive to its holder. The life estate is a current possessory estate. It is not inheritable, nor does dower attach in the case of a male life estate holder. The parameters of the life estate are very important to understand. I have reviewed numerous documents in which the preparer was asking for a probate regarding a deceased holder of a life estate, or the preparer was requesting a release of dower rights of the spouse of a male life estate holder. This is a complete misunderstanding of the life estate.
Now, after the conveyance of the life estate from Bill Smith to Shirley Thomas, we must go back to the calculus of estates to determine what new estates have been created. Remember that when the fee simple absolute line is broken, the fee simple absolute itself is destroyed. So, using our example, what are the new estates? Well, we know that Bill Smith has conveyed a life estate to Shirley Thomas. Bill Smith, by conveying a life estate, has carved out a piece of his fee simple absolute. Remember that to satisfy the calculus of estates, the entire line must add up to a fee simple absolute. Does the conveyance of a life estate to Shirley add up to a fee simple absolute? The obvious answer is no. Well, what follows Shirley's life estate?
When Shirley's life estate terminates, we call Bill's remaining interest a Reversion. When Shirley dies, the property reverts back to Bill in fee simple absolute. Let me try to clarify this. Bill conveyed a life estate, which is less than a fee simple absolute. Bill's retained interest is called a reversion. Upon Shirley's death, the property will automatically revert back to Bill Smith. With the life estate of Shirley terminated, Bill once again owns a fee simple absolute.
I told you in the last posting that I would be discussing the elements of future interest law in these articles. There are six future interests. Well, the reversion is the first of these future interests. A future interest in land is said to be a present right to future possession. In the example I have been using, Bill Smith conveyed a life estate to Shirley Thomas. This life estate is a present possessory interest. We also know that Bill Smith holds a reversion. However, this reversion is not a present possessory interest; it is a future possessory interest. This future interest is an estate in the land to the same extent of the present interest. So you see, when analyzing the state of title (ownership), all of the estates must be accounted for. In our example, the new state of title after Bill's conveyance to Shirley would be: Life Estate held by Shirley Thomas and Reversion held by Bill Smith. This is exactly how I would set the vesting line on a title commitment given our example.
In summary, I want you to think of the fee simple absolute as the starting point in all my discussions of the estates. It is the mother ship of all our estates. When any interest in the fee simple absolute is carved out, as in the case of a life estate, we have to determine what new estates have been created. With the conveyance of a life estate, we have learned that two new estates have been created: the life estate and the reversion. The life estate and the reversion, when added together, add up to a fee simple absolute, thereby satisfying the calculus of estates.
Click on next week for a continuation of the estates.
dave
Reference the previous article in which I discussed the calculus of estates. Remember that the calculus of estates is represented by a line. The entire line represents a fee simple absolute. Let me demonstrate this visually (line _________________ = fee simple absolute.) This is a clean line with no impediments to title. Well, what happens if we break this line into two or more segments? As mentioned, if the fee simple absolute line is broken, the fee simple absolute is destroyed, resulting in the creation of new estates. Let me show you how the fee simple absolute line can be broken by the conveyance of a Life Estate.
Let's say that Bill Smith is the owner of Blackacre in fee simple absolute. Bill Smith then conveys a life estate to Shirley Thomas. Note that Bill Smith conveyed a life estate, he did not convey his entire fee simple absolute. How does this affect the ownership of the property? To answer this question we must determine what new estates are created by Bill's transfer to Shirley.
First off, what is a life estate? A life estate is true to its name. It is an estate in land that endures for the life of its owner. The moment the holder of the life estate dies is the moment the life estate is terminated. A life estate is exclusive to its holder. The life estate is a current possessory estate. It is not inheritable, nor does dower attach in the case of a male life estate holder. The parameters of the life estate are very important to understand. I have reviewed numerous documents in which the preparer was asking for a probate regarding a deceased holder of a life estate, or the preparer was requesting a release of dower rights of the spouse of a male life estate holder. This is a complete misunderstanding of the life estate.
Now, after the conveyance of the life estate from Bill Smith to Shirley Thomas, we must go back to the calculus of estates to determine what new estates have been created. Remember that when the fee simple absolute line is broken, the fee simple absolute itself is destroyed. So, using our example, what are the new estates? Well, we know that Bill Smith has conveyed a life estate to Shirley Thomas. Bill Smith, by conveying a life estate, has carved out a piece of his fee simple absolute. Remember that to satisfy the calculus of estates, the entire line must add up to a fee simple absolute. Does the conveyance of a life estate to Shirley add up to a fee simple absolute? The obvious answer is no. Well, what follows Shirley's life estate?
When Shirley's life estate terminates, we call Bill's remaining interest a Reversion. When Shirley dies, the property reverts back to Bill in fee simple absolute. Let me try to clarify this. Bill conveyed a life estate, which is less than a fee simple absolute. Bill's retained interest is called a reversion. Upon Shirley's death, the property will automatically revert back to Bill Smith. With the life estate of Shirley terminated, Bill once again owns a fee simple absolute.
I told you in the last posting that I would be discussing the elements of future interest law in these articles. There are six future interests. Well, the reversion is the first of these future interests. A future interest in land is said to be a present right to future possession. In the example I have been using, Bill Smith conveyed a life estate to Shirley Thomas. This life estate is a present possessory interest. We also know that Bill Smith holds a reversion. However, this reversion is not a present possessory interest; it is a future possessory interest. This future interest is an estate in the land to the same extent of the present interest. So you see, when analyzing the state of title (ownership), all of the estates must be accounted for. In our example, the new state of title after Bill's conveyance to Shirley would be: Life Estate held by Shirley Thomas and Reversion held by Bill Smith. This is exactly how I would set the vesting line on a title commitment given our example.
In summary, I want you to think of the fee simple absolute as the starting point in all my discussions of the estates. It is the mother ship of all our estates. When any interest in the fee simple absolute is carved out, as in the case of a life estate, we have to determine what new estates have been created. With the conveyance of a life estate, we have learned that two new estates have been created: the life estate and the reversion. The life estate and the reversion, when added together, add up to a fee simple absolute, thereby satisfying the calculus of estates.
Click on next week for a continuation of the estates.
dave
Saturday, November 10, 2007
The Fee Simple Absolute and Calculus of Estates
There are 11 estates in land recognized in Michigan, which are:
1) The Fee Simple Absolute
2) The Life Estate
3) The Reversion
4) The Fee Simple Determinable
5) The Possibility of Reverter
6) The Fee Simple Upon Condition Subsequent
7) The Right of Re-entry
8) The Fee Simple Subject to Executory Limitation
9) The Executory Interest
10) The Vested Remainder, and
11) The Contingent Remainder
I will be covering all the above estates in due course, but this article will focus on the first of these; the Fee Simple Absolute.
First off, what is an estate? The word estate stems from the word status. When someone claims to hold an estate in land, we must determine the status of that claim. Example: Let's say Bill Smith claims an interest in Blackacre. We perform the title search and find that Bill Smith only holds a life estate interest. The result is that Bill Smith's estate is that of a life estate in Blackacre. Trust me, this will become clear to you after I compose and you read all the estate articles. This is tough stuff, but I am confident that I can help you grasp the function of these estates.
IMPORTANT: All of our property laws grew out a rich history. Some of the property rules, particularly regarding estates in land, developed over centuries and were the product of accident and confusion. Some of the aspects I will be discussing may not seem logical to the reader. This is totally normal thinking, because accident and confusion can produce some absurd results. Just keep in mind that the rules in property law, whether logical or not, are the current rules. So if something seems unclear or illogical, just accept the rule 'as stated' and move on. Knowing that the rule was formed by accident or mistake will actually help you accept it.
These writings will incorporate the elements of future interest law. I will let the reader know when I am discussing any of the future interests. In my experience, it is impossible to accurately discuss the estates in land without discussing the components of future interest law. They go hand in hand.
Another question. Why should the reader care about understanding estates? Let me use a car engine to explain: Visualize the engine and all its components. Let's say that Dave Phillips decides he wants to become an auto mechanic. He applies for a job and is hired on the spot. He opens up the hood of a 2003 Mercury Sable and all he recognizes is the 'dip stick'. He has absolutely no knowledge of the additional components of the engine. So you see, Dave the dip stick cannot properly analyze the problem with the engine, because he doesn't understand how the engine functions as a whole. Analyzing estates in land is exactly the same as my example. The reader may understand what a fee simple is, but when the chain of title begins to disclose other estates, the reader may be left in the same shoes as Dave the dip stick.
The Fee Simple Absolute. The most valued form of land ownership is the fee simple absolute. Let me attempt to define the fee simple absolute. The fee is synonymous with holding or ownership. Simple refers to an estate that is inheritable. Absolute discloses that there are no apparent impediments to the title, such as competing estates or conditions on ownership. Let me illustrate this with a basic example: Let's say Mr. X, a single man, conveys his property to Dave Phillips. The deed contains no conditions and there are no apparent competing estates. Dave Phillips would own a fee simple absolute.
Why is the fee simple absolute preferred? The fee simple absolute is indeed simple. The property owned by Dave Phillips is inheritable. It could theoretically remain in his family tree forever. Also, if Dave Phillips decides to sell his property, he can do so freely. There are no additional estates to be concerned with. Free transferability and inheritance are the fundamental reasons why a fee simple absolute is so appealing to its owner.
Critical to your education on estates is an understanding of the so called Calculus of Estates. Don't be intimidated by the name. The calculus of estates is a simple formula. When this formula is satisfied, a complete and accurate state of title will be found. State of title is an accurate and complete disclosure of the true owner(s) of the property.
That's great Dave, but what is the Calculus of Estates? Think of the calculus of estates as a line segment with a clear beginning and a clear end. This entire line segment represents a fee simple absolute, as discussed earlier. This fee simple absolute line segment is often broken into separate pieces. When the line segment is broken, the fee simple absolute is destroyed, resulting in the creation of new estates. Each separate piece of that line segment will represent a particular estate. To satisfy the calculus of estates, all the separate pieces, when added together, must add up to a fee simple absolute. Remember, the fee simple absolute represents the entire line segment. I use the calculus on every chain of title I examine. By applying the calculus I am sure that I have an accurate and complete state of title.
This article may seem a bit confusing to the reader. I will ask you to give it some time. It is incredibly hard to precisely convey knowledge of these estates in a writing. As mentioned, when you have read all the estate compilations, I believe these earlier writings will begin to make more sense. Also, as you gain experience in reading a chain of title, or a series of deed conveyances, the estates will become less confusing and less intimidating.
Please click on next week for my article on the Life Estate and the Reversion.
dave
1) The Fee Simple Absolute
2) The Life Estate
3) The Reversion
4) The Fee Simple Determinable
5) The Possibility of Reverter
6) The Fee Simple Upon Condition Subsequent
7) The Right of Re-entry
8) The Fee Simple Subject to Executory Limitation
9) The Executory Interest
10) The Vested Remainder, and
11) The Contingent Remainder
I will be covering all the above estates in due course, but this article will focus on the first of these; the Fee Simple Absolute.
First off, what is an estate? The word estate stems from the word status. When someone claims to hold an estate in land, we must determine the status of that claim. Example: Let's say Bill Smith claims an interest in Blackacre. We perform the title search and find that Bill Smith only holds a life estate interest. The result is that Bill Smith's estate is that of a life estate in Blackacre. Trust me, this will become clear to you after I compose and you read all the estate articles. This is tough stuff, but I am confident that I can help you grasp the function of these estates.
IMPORTANT: All of our property laws grew out a rich history. Some of the property rules, particularly regarding estates in land, developed over centuries and were the product of accident and confusion. Some of the aspects I will be discussing may not seem logical to the reader. This is totally normal thinking, because accident and confusion can produce some absurd results. Just keep in mind that the rules in property law, whether logical or not, are the current rules. So if something seems unclear or illogical, just accept the rule 'as stated' and move on. Knowing that the rule was formed by accident or mistake will actually help you accept it.
These writings will incorporate the elements of future interest law. I will let the reader know when I am discussing any of the future interests. In my experience, it is impossible to accurately discuss the estates in land without discussing the components of future interest law. They go hand in hand.
Another question. Why should the reader care about understanding estates? Let me use a car engine to explain: Visualize the engine and all its components. Let's say that Dave Phillips decides he wants to become an auto mechanic. He applies for a job and is hired on the spot. He opens up the hood of a 2003 Mercury Sable and all he recognizes is the 'dip stick'. He has absolutely no knowledge of the additional components of the engine. So you see, Dave the dip stick cannot properly analyze the problem with the engine, because he doesn't understand how the engine functions as a whole. Analyzing estates in land is exactly the same as my example. The reader may understand what a fee simple is, but when the chain of title begins to disclose other estates, the reader may be left in the same shoes as Dave the dip stick.
The Fee Simple Absolute. The most valued form of land ownership is the fee simple absolute. Let me attempt to define the fee simple absolute. The fee is synonymous with holding or ownership. Simple refers to an estate that is inheritable. Absolute discloses that there are no apparent impediments to the title, such as competing estates or conditions on ownership. Let me illustrate this with a basic example: Let's say Mr. X, a single man, conveys his property to Dave Phillips. The deed contains no conditions and there are no apparent competing estates. Dave Phillips would own a fee simple absolute.
Why is the fee simple absolute preferred? The fee simple absolute is indeed simple. The property owned by Dave Phillips is inheritable. It could theoretically remain in his family tree forever. Also, if Dave Phillips decides to sell his property, he can do so freely. There are no additional estates to be concerned with. Free transferability and inheritance are the fundamental reasons why a fee simple absolute is so appealing to its owner.
Critical to your education on estates is an understanding of the so called Calculus of Estates. Don't be intimidated by the name. The calculus of estates is a simple formula. When this formula is satisfied, a complete and accurate state of title will be found. State of title is an accurate and complete disclosure of the true owner(s) of the property.
That's great Dave, but what is the Calculus of Estates? Think of the calculus of estates as a line segment with a clear beginning and a clear end. This entire line segment represents a fee simple absolute, as discussed earlier. This fee simple absolute line segment is often broken into separate pieces. When the line segment is broken, the fee simple absolute is destroyed, resulting in the creation of new estates. Each separate piece of that line segment will represent a particular estate. To satisfy the calculus of estates, all the separate pieces, when added together, must add up to a fee simple absolute. Remember, the fee simple absolute represents the entire line segment. I use the calculus on every chain of title I examine. By applying the calculus I am sure that I have an accurate and complete state of title.
This article may seem a bit confusing to the reader. I will ask you to give it some time. It is incredibly hard to precisely convey knowledge of these estates in a writing. As mentioned, when you have read all the estate compilations, I believe these earlier writings will begin to make more sense. Also, as you gain experience in reading a chain of title, or a series of deed conveyances, the estates will become less confusing and less intimidating.
Please click on next week for my article on the Life Estate and the Reversion.
dave
Monday, November 5, 2007
Common Law Instruments of Conveyance
This article written by Dave Phillips on November 5, 2007.
As a beginning article, I will be discussing the common law instruments of conveyance. The purpose of this writing is to give the reader a basic introductory understanding of the various deed instruments.
There are two basic instruments of conveyance used in property transactions. These are (1) the Warranty Deed, and (2) the Quit Claim Deed. There are other deeds that can be used, such as the Special Warranty Deed, but an understanding of the Warranty Deed and Quit Claim Deed are first and foremost at this stage of a beginner's development.
First, some arts and crafts: The person conveying the property is referred to as the grantor; the person receiving the conveyance of the property is referred to as the grantee. Become familiar with the labeling. The language used in the title insurance industry is very particular. As you gain experience the language will become second nature.
The Warranty Deed.
The Warranty Deed, or general Warranty Deed, as it is sometimes called, is the traditional instrument used to convey ownership of land. The Warranty Deed is true to its name. It is a conveyance of land by a grantor to a grantee, which conveyance carries with it three (3) present covenants and three (3) future covenants. These are often collectively referred to as the six covenants of title, or simply the deed covenants. A covenant is synonymous with a promise.
*The three present covenants are (1) Seisin, (2) Right to Convey, and (3) Against Encumbrances.
*The three future covenants are (1) Quiet Enjoyment, (2) General Warranty, and (3) Further Assurance.
What are the parameters of the three present covenants?
-Seisin, technically speaking, is a declaration by the grantor that the grantor is the owner of the estate they are purporting to convey and that the grantor is in possession of the land which they are purporting to convey. In its most common form, seisin is a declaration by the grantor that the grantor is the fee simple owner, the true owner, of the subject property. The covenant of seisin, in effect, is a promise made by the grantor to the grantee that the grantor owns what they purport to own.
-Right to Convey is a declaration by the grantor that the grantor has the right to convey what it purports to convey. This seems to overlap with seisin, and in most instances it does. However, the reason for the distinction is logical. For example, when property is conveyed by a 'power of attorney', the 'power of attorney' has the right to convey the property, but is not seized of the property. In other words, the 'power of attorney' has the legal right to convey, but they are not the legal owner.
-Against Encumbrances is a declaration by the grantor that the land they are purporting to convey is free of all liens, easements, lessee interests, etc., except for those interests which are set forth as a recital on the deed itself. This covenant is most useful in flushing out encumbrances that are not a matter of public record.
**Any of the three present covenants are breached, if at all, the moment the deed is executed and properly delivered. The moment of breach is what separates the present covenants from the future covenants.
What are the parameters of the three future covenants?
-Quiet Enjoyment is a promise by the grantor that the grantee will enjoy ownership of the property free from the lawful rights or claims of others.
-General Warranty is a promise by the grantor to the grantee that the grantor will warrant against any lawful claims arising out of the grantor's ownership or any of the grantor's predecessors. This is an extremely inclusive promise because not only is the grantor warranting against problems relative to its ownership; the grantor is also warranting against problems created or undertaken by a preceding owner(s).
-Further Assurance is a promise by the grantor to the grantee that the grantor will take all steps necessary to clear up title problems arising out of the breach of general warranty. That is all that further assurance entails.
**Any of the three future covenants are breached, if at all, ONLY WHEN a party holding a legal right attempts to enforce that right. In other words, the grantee cannot sue the grantor, on the future covenants, until action has been commenced on behalf of a person or entity claiming a legal interest in the land.
When read together, the covenant of quiet enjoyment and the covenant of general warranty are very similar in nature, and the case law tends to discuss the two as if they were one in the same. I think it best to just understand that the future covenants, when boiled down, simply promise the grantee that the grantee will not endure title problems subsequent to acquiring title, and, if they do experience problems, the grantor will step in and attempt to remedy the problem(s).
Cumulatively, the present covenants and future covenants appear to create decent coverage for the new grantee. However, it must be understood that collecting a judgment against a grantor in breach will depend on the creditworthiness of the grantor (judgment debtor). The aggrieved grantee may not be able to receive adequate compensation because the grantor in breach is insolvent. Also, the amount of damages is limited to the amount that the original grantor, the party in breach, paid for the property. Example: Let's assume that a current owner paid $100,000.00 for its property and is now suing a remote grantor based on future covenants. If the remote grantor only paid $5,000.00 for the property, the amount of recovery available to the current owner will be limited to $5,000.00. THUS THE IMPORTANCE OF OBTAINING AN OWNER'S POLICY OF TITLE INSURANCE.
The Quit Claim Deed.
The Quit Claim Deed carries no warranties. The Quit Claim Deed only purports to convey the interest which the grantor owns, whatever that interest may be. This deed is usually used to clean up a messy chain of title. A Quit Claim Deed is not the instrument normally used for a straightforward conveyance from an owner to a purchaser. This is because the Quit Claim Deed offers no warranties. As a purchaser, you will be looking for the instrument that offers the most coverage in case of an improper conveyance. In summary, think of the Quit Claim Deed as the cleanup deed; it simply cleans up stray interests in the chain of title.
Hope this helps. Please forward comments and make sure to visit my site next week when I will begin discussing the 11 estates in land recognized in Michigan.
As a beginning article, I will be discussing the common law instruments of conveyance. The purpose of this writing is to give the reader a basic introductory understanding of the various deed instruments.
There are two basic instruments of conveyance used in property transactions. These are (1) the Warranty Deed, and (2) the Quit Claim Deed. There are other deeds that can be used, such as the Special Warranty Deed, but an understanding of the Warranty Deed and Quit Claim Deed are first and foremost at this stage of a beginner's development.
First, some arts and crafts: The person conveying the property is referred to as the grantor; the person receiving the conveyance of the property is referred to as the grantee. Become familiar with the labeling. The language used in the title insurance industry is very particular. As you gain experience the language will become second nature.
The Warranty Deed.
The Warranty Deed, or general Warranty Deed, as it is sometimes called, is the traditional instrument used to convey ownership of land. The Warranty Deed is true to its name. It is a conveyance of land by a grantor to a grantee, which conveyance carries with it three (3) present covenants and three (3) future covenants. These are often collectively referred to as the six covenants of title, or simply the deed covenants. A covenant is synonymous with a promise.
*The three present covenants are (1) Seisin, (2) Right to Convey, and (3) Against Encumbrances.
*The three future covenants are (1) Quiet Enjoyment, (2) General Warranty, and (3) Further Assurance.
What are the parameters of the three present covenants?
-Seisin, technically speaking, is a declaration by the grantor that the grantor is the owner of the estate they are purporting to convey and that the grantor is in possession of the land which they are purporting to convey. In its most common form, seisin is a declaration by the grantor that the grantor is the fee simple owner, the true owner, of the subject property. The covenant of seisin, in effect, is a promise made by the grantor to the grantee that the grantor owns what they purport to own.
-Right to Convey is a declaration by the grantor that the grantor has the right to convey what it purports to convey. This seems to overlap with seisin, and in most instances it does. However, the reason for the distinction is logical. For example, when property is conveyed by a 'power of attorney', the 'power of attorney' has the right to convey the property, but is not seized of the property. In other words, the 'power of attorney' has the legal right to convey, but they are not the legal owner.
-Against Encumbrances is a declaration by the grantor that the land they are purporting to convey is free of all liens, easements, lessee interests, etc., except for those interests which are set forth as a recital on the deed itself. This covenant is most useful in flushing out encumbrances that are not a matter of public record.
**Any of the three present covenants are breached, if at all, the moment the deed is executed and properly delivered. The moment of breach is what separates the present covenants from the future covenants.
What are the parameters of the three future covenants?
-Quiet Enjoyment is a promise by the grantor that the grantee will enjoy ownership of the property free from the lawful rights or claims of others.
-General Warranty is a promise by the grantor to the grantee that the grantor will warrant against any lawful claims arising out of the grantor's ownership or any of the grantor's predecessors. This is an extremely inclusive promise because not only is the grantor warranting against problems relative to its ownership; the grantor is also warranting against problems created or undertaken by a preceding owner(s).
-Further Assurance is a promise by the grantor to the grantee that the grantor will take all steps necessary to clear up title problems arising out of the breach of general warranty. That is all that further assurance entails.
**Any of the three future covenants are breached, if at all, ONLY WHEN a party holding a legal right attempts to enforce that right. In other words, the grantee cannot sue the grantor, on the future covenants, until action has been commenced on behalf of a person or entity claiming a legal interest in the land.
When read together, the covenant of quiet enjoyment and the covenant of general warranty are very similar in nature, and the case law tends to discuss the two as if they were one in the same. I think it best to just understand that the future covenants, when boiled down, simply promise the grantee that the grantee will not endure title problems subsequent to acquiring title, and, if they do experience problems, the grantor will step in and attempt to remedy the problem(s).
Cumulatively, the present covenants and future covenants appear to create decent coverage for the new grantee. However, it must be understood that collecting a judgment against a grantor in breach will depend on the creditworthiness of the grantor (judgment debtor). The aggrieved grantee may not be able to receive adequate compensation because the grantor in breach is insolvent. Also, the amount of damages is limited to the amount that the original grantor, the party in breach, paid for the property. Example: Let's assume that a current owner paid $100,000.00 for its property and is now suing a remote grantor based on future covenants. If the remote grantor only paid $5,000.00 for the property, the amount of recovery available to the current owner will be limited to $5,000.00. THUS THE IMPORTANCE OF OBTAINING AN OWNER'S POLICY OF TITLE INSURANCE.
The Quit Claim Deed.
The Quit Claim Deed carries no warranties. The Quit Claim Deed only purports to convey the interest which the grantor owns, whatever that interest may be. This deed is usually used to clean up a messy chain of title. A Quit Claim Deed is not the instrument normally used for a straightforward conveyance from an owner to a purchaser. This is because the Quit Claim Deed offers no warranties. As a purchaser, you will be looking for the instrument that offers the most coverage in case of an improper conveyance. In summary, think of the Quit Claim Deed as the cleanup deed; it simply cleans up stray interests in the chain of title.
Hope this helps. Please forward comments and make sure to visit my site next week when I will begin discussing the 11 estates in land recognized in Michigan.
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