03 Deeds (2)

deed of trust Breach of Terms

Acceleration clause: Allows the lender to ask the borrower to accelerate the payment schedule and to immediately pay the entire amount of the loan Power-of-sale clause: Gives lenders the ability to post property for foreclosure if the debtor is behind on payments

Quitclaim Deeds and Adverse Possession

As you know, adverse possession is the involuntary transfer of title from an owner who does not use or inspect their land for a number of years to another person who has some claim to the land and takes possession. A nice, formalized way to transfer interest is with a quitclaim deed. If your neighbor has been using and benefiting from a piece of your property and you're cool with it, the quitclaim deed would serve to officially relinquish the property to your neighbor, ending or preventing disputes.

legacy or bequest

Gift of personal property by a will given to the legatee.

Title Theory States: Use Deeds of Trust

In a title theory state, a deed of trust is used as the security instrument. As we discussed, a deed of trust involves three parties. Beginning of Loan: The title is not transferred to the trustor (borrower) — the title is transferred to a third party called the trustee who holds the legal title on behalf of the lender. The trustor is in possession of what are known as equitable rights in the property. End of Loan: After the mortgage has been fully paid off, the title then transfers to the owner of the property.

Mortgage: Borrower Has the Title, Lender the Lien

In states that use the mortgage document: The borrower (homebuyer) has the title to the property The lender has a lien on the property When the borrower repays the loan, the lender releases the lien. If the borrower defaults on the payments, the lender can use the mortgage (lien) to foreclose on the property.

Security Instruments: Mortgage or Deed of Trust

In the promissory note, the borrower promises to repay the lender. In the security instrument, the borrower agrees that the lender can seize their property if they fail to repay the loan. In some states, including New York, they tend to use a mortgage as a security instrument. In others, the common form is the deed of trust. Let's discuss mortgages first.

Escheat

The chain of heirs goes beyond spouses, children, parents, and siblings. If someone dies and is not survived by any of these types of relatives, property will be transferred to surviving grandchildren, grandparents, cousins, nephews, and nieces. If there are no claims made by creditors on the property and no heirs are found, it will escheat to the state. This is a last resort when absolutely no living relatives can be found.

Judicial Deeds

The final type of deed you should know about is the judicial deed. Judicial deeds are executed pursuant to court order. Full consideration is usually stated in these deeds. Ownership is generally implied, but judicial deeds usually don't contain any covenants or warranties. If a covenant is present, it typically states that the grantor hasn't encumbered the property.

Covenant of Quiet Enjoyment

The grantor guarantees that the title is good against any third party who might bring court actions to establish superior title to the property. (Sorry, it doesn't protect you from your teenage neighbor's band practice.) 🎸

Covenant of Warranty Forever

The grantor guarantees that they will compensate the grantee for losses if the title fails in the future. The grantor will help the grantee handle any third party claims to the title.

Covenant of Further Assurances

The grantor promises to obtain and deliver any instrument needed to make the title good.

Covenant of Seisin

The grantor states that they hold the title that is being conveyed in the deed. That's always good news.

Covenant Against Encumbrances

The grantor warrants that the property is free from liens or encumbrances (except those named in the deed). If this covenant is broken, the grantee can sue for the cost of removing the encumbrance.

Covenant of Right to Convey

The grantor warrants that they are the property owner and have the right to convey title. If this is broken, the grantee can recover the full purchase price.

Mortgage: Two Parties

The mortgage document is a two-party instrument, with the two parties being the borrower (mortgagor) and the lender (mortgagee).

Power-of-Sale Clause

The second remedy at the lender's disposal is to post the property for foreclosure. The power-of-sale clause gives lenders the ability to post property for foreclosure if the debtor is behind on payments. In title theory states, as long as the trustee follows the notification rules, the sale of the property on the courthouse steps is straightforward. Basically, the trustee representing the lender gives notice of the time, place, and terms of the sale at least 21 days prior. Sales typically occur in or around the county courthouse.

Legal Requirements for Making a Will

The testator must be an adult and of sound mind at the time they execute the will. There are no rigid tests to determine the capacity to make a will. Usually the courts hold that the testator must have sufficient mental capacity to understand the nature and extent of their property, the identity of the natural heirs, and the fact that execution of the will means that the property passes to those named in the will at their death. The courts also hold that the drawing of a will must be a voluntary act, free of any undue influence by other people. A will that was made by someone who had previously been declared mentally incompetent by the courts would be void. Because a will must be valid to convey title to real estate effectively, it must be executed and prepared in accordance with the laws of the state where the real estate is located. The testator may modify their executed will by means of a codicil, which must be in the same form as the will it amends. A will may be revoked at any time prior to the death of the testator. Legally, a decedent's title to their real estate immediately passes either to the persons named in the will or to the heirs by descent. However, the will must be probated if there is a dispute among the devisees. Note: Any witnesses to the creation of the will should not be anyone who is named as devisee or legatee in the will.

Types of Deeds

There are four main types of deeds that are commonly used in New York to convey real estate. In order of the most protection for the grantee to the least, they are: Full covenant and warranty deed Bargain and sale deed with covenants Bargain and sale deed without covenants Quitclaim deed Note: Other instruments affect title, but do not convey title, such as mortgages. These documents are not intended to convey title but are financing instruments that establish real estate as security for the payment of a debt.

devise

To transfer real property by will is to devise it, and a person who receives real property by will is known as a devisee. 🏠

Title by Descent

Under New York's Statute of Descent and Distribution, property is transferred to the decedent's heirs. In order of priority, heirs of the deceased include their spouse children parents siblingss The relative's right to inherit must be established by proof of heirship during the probate process.

Tenancy by the Entirety

What happens to the primary residence of a couple when one spouse dies? When a married couple buys a home in New York, it is usually deeded to them as a tenancy by the entirety. The property is jointly held by both spouses, who are viewed as one legal entity by the law. When one spouse dies, their share of the home passes immediately to the surviving spouse. Children of the decedent will not have a claim to the jointly held property, nor can it be willed to them by one spouse while both spouses are alive.

referee's deed

a deed that contains no covenants or warranties, although ownership is implied

bargain and sale deed

a deed without any warranty against encumbrances; only implies that the grantor holds the right to convey title

testator

a person who makes a will

codicil

a supplement to a will

full covenant and warranty deed

a type of deed containing the strongest and broadest form of guarantee of title; provides the greatest protection of any deed to the grantee A warranty is like a legal promise that the grantee will get to own and enjoy their property to the fullest. Warranties can be directly stated in the deed or implied by the use of certain language, such as "convey and warrant," "warrant generally," and "grant, bargain, and sell." Covenants = protection for grantees, but that doesn't mean buyers can skip the title search and title insurance. Their attorney should still order a title search and make sure title insurance is secured.

hereditament

anything that can be inherited

quitclaim deed

type of deed that conveys any interest, title, or right to a parcel of land the grantor has at the time the deed is executed; grantor does not represent that there is any interest at all

Brokers and Probate Proceedings

A broker entering into a listing agreement with the executor or administrator of an estate in probate should be aware that the amount of commission will be fixed by the court and that such commission is payable only from the proceeds of the sale. The broker will not be able to collect a commission unless the court approves the sale. In addition, the broker should be aware of who owns the property and has the authority to sign the listing agreement. If the previous owner died intestate, it may not be immediately obvious which heirs own the property.

Quitclaim Deeds

A quitclaim deed is a type of deed that conveys any interest, title, or right to a parcel of land the grantor has at the time the deed is executed. The grantor does not represent that there is any interest at all. A quitclaim deed provides the grantee with the least protection of any deed, while putting the least liability on the grantor. It carries no covenants or warranties and conveys only such interest that the grantor may have when the deed is delivered. Quitclaim deeds allow the grantor to transfer an uncertain interest in real property. If the grantor has no interest, the grantee will acquire nothing, nor will the grantee acquire any right of warranty claim against the grantor. Quitclaim deeds are frequently used to correct a title defect usually discovered after the fact. While it carries no covenants or warranties for the grantee, it is used to correct a title issue. A misspelling of the seller's (grantor) or buyer's (grantee) name, an incorrect legal description, or a recorded easement that was missed are all examples of problems that a quitclaim deed can solve. In addition to correcting title defects, a quitclaim is also used when a property transfers ownership without being sold — a fairly common occurrence when transfers occur between family members.

Bargain & Sale Deed Without Covenants

A true bargain and sale deed is a deed without any covenants or warranties against encumbrances. It only implies that the grantor has possession of the property and holds the right to convey title. Sometimes this is called a deed without warranty. Without warranties, the grantee has little legal recourse if defects later appear in the title. Plenty of lenders won't want to fund a mortgage if the deed will be a bargain and sale deed.

Lien Theory States: Promissory Note + Mortgage

Beginning of Loan: In a lien theory state, the mortgagor retains the title to the property, the promissory note serves as the mortgagor's promise to pay the lender for the loan, and the mortgage serves as the mortgagee's collateral for ensuring that the loan does get paid. If the mortgagor defaults, the mortgagee can go through a formal foreclosure proceeding to get the title to the property. End of Loan: When the mortgagor pays off the loan, the mortgage is satisfied and the mortgagee releases their lien on the property.

Testate

Having made and left a valid will.

Title by Descent: Spouses

If a decedent is survived by a spouse, that person is generally first in line to inherit property. In New York, assuming the absence of a prenuptial agreement, a spouse will be entitled to $50,000 and half of the estate assets. The other half will be given to the decedent's child or children, if applicable. If there are multiple children, their share will be split equally among them. If the decedent did not have a living spouse at the time of their death, any surviving children will share the whole estate.

Administrators

If no executor was named in the will, the court appoints an administrator to oversee the administration and distribution of the estate. The court gives the administrator the authority to appraise the assets of the estate and satisfy all debts that are owed by the decedent. The administrator is responsible for paying federal estate taxes, state inheritance taxes, and other claims payable against the estate. Then the remaining assets of the estate are distributed according to the state law of descent

Intestate Succession Fun Facts

Immigration status doesn't matter. Legal heirs can inherit the decedent's property even if they are not in the United States legally. Half-relatives are whole heirs. If an estate is to be distributed to the decedent's siblings, a half-brother or half-sister is treated like any other sibling. Conception counts. A baby can inherit property even if the decedent dies before the new relative is born. As long as they're conceived before the death, they count as an heir.

The Major Difference Between Title Theory and Lien Theory

In title theory states, or states where deeds of trust are used, foreclosure proceedings for default are usually simpler and faster than for mortgage loans. Since the trustee holds the bare title for the lender, once the borrower defaults, the lender can ask for the title from the borrower and seize the property. One of the major differences between the lender having a lien and the lender having title is what happens when the loan goes into default. If the property is a rental property and is in a title theory state, the lender (who already has title to the property) is entitled to start collecting the monthly rent upon default. In a lien theory state, unless otherwise agreed in the loan documents (which will be the case for all federally related loans - search for "Freddie Mac 1-4 family rider") the owner of the property will continue to collect the monthly rent until the lender forecloses on the property and either sells it to another party or becomes the new owner themselves.

Lien Theory States: Mortgagor Has Legal and Equitable Rights

Legal and Equitable Rights: In a lien theory state, the mortgagor retains both the legal and equitable rights to a property. The mortgagor is the owner of the property. Nothing But a Lien: In contrast, the mortgagee (lender) has a lien on the property but no rights to the title. The mortgage serves as nothing more than collateral to ensure the loan is paid.

Title Theory vs. Lien Theory Recap

Lien Theory State: Security Instrument: Use mortgages as security Borrower Rights: Mortgagor has the title Lender Rights: Mortgagee only has a lien on the property; mortgage is strictly collateral Foreclosure: Mortgagee must go through formal foreclosure procedures in order to obtain legal title Title Theory State: Security Instrument: Use deeds of trust Borrower Rights: Trustor has equitable right (secondary) to the title Lender Rights: Beneficiary has legal title to the property Foreclosure: Simpler and faster for a lender (beneficiary) to foreclose on a property

Title Theory States and Lien Theory States

Mortgages are used most often in lien theory states (like New York). Deeds of trust are used most often in title theory states.

Acceleration Clause

Most deeds of trust (and mortgages) contain an acceleration clause, which makes the entire loan amount due immediately upon default. Default occurs when the borrower violates any of the terms of the loan agreement, which is most often in the form of delinquent payments. The acceleration clause is important legally, because the lender would otherwise have to sue for each late payment as it became due. Let me state that again in different words: if a party breaches a contract, then the full performance of that contract becomes immediately due. It gets accelerated, see? "Barbara Hamoy takes out a $200,000 loan with an acceleration clause. She makes payments of $10,000 every month. After 12 months of making payments, Barbara fails to make a payment. Barbara still owes $80,000 to the lender. But because she breached the contract, that whole $80,000 is due immediately. The lender would probably sue Barbara to try and recover that money."

Lien Theory vs. Title Theory: Rent

One more interesting difference between lien theory states and title theory states is the way rent on a rental property is handled when the loan on the property is in default. Since the beneficiary already owns the property, the rent money immediately belongs to the beneficary in a title theory state. However, in lien theory state, the trustor owns the property and remains entitled to the rent money until the day the beneficiary goes to the foreclosure sale and obtains title to the property.

The Six Covenants

PRESENT COVENANTS Covenant of seisin Covenant of right to convey Covenant against encumbrances FUTURE COVENANTS Covenant of quiet enjoyment Covenant for further assurances Covenant of warranty

Disinherited Heirs

Parents have the ability to disinherit their child in their will. This must take the form of a very clear written statement within the will. If a parent dies without a will, any and all surviving children will be entitled to their share of the estate as distributed according to the laws of intestate succession.

Probate Proceedings

Probate is a legal process by which a court determines the validity of a will and establishes the assets of a decedent and who will inherit those assets. Probate is not always necessary, especially in straightforward cases or when an estate is small. Probate proceedings take place in one of these places: The county where the deceased resided, if they had a fixed place of residence The county where their principal estate was located The county where they died

Types of Judicial Deeds

Sheriff's deed: This deed is used in a sheriff's sale or auction when the owner's property is sold because of a court decision against them. A sheriff's deed may also be used in foreclosure and tax debt situations, making it very similar to tax deeds and referee's deeds. Guardian's deed: This deed conveys property by a court-appointed representative acting on behalf of an incompetent person or a minor who cannot serve as a grantor on their own. This may also be called a conservator's deed. Referee's deed: This deed contains no covenants or warranties, although ownership is implied. It is utilized in foreclosure and bankruptcy proceedings. It gets its name from the court-appointed person who handles the sale, the referee. Executor's deed: This type of deed conveys the title to the property of a deceased person. Title will be transferred to the heir(s) designated in the decedent's will. The full dollar value of the property will be stated on the deed. Administrator's deed: This is used by a person who has been appointed by the court to act as an administrator and convey a deceased person's property. It's similar to the executor's deed (and also must state the full dollar value of the property), but it's used in cases where the deceased owner did not leave a will. Tax deed: This deed typically conveys title to the highest bidder at an auction. It's used when a property is foreclosed on by a government agency to recoup unpaid real estate taxes. A tax deed has the poor level of grantee protection of a quitclaim deed, and the new owner would only want to use a quitclaim deed for subsequent transfers.

Title by Descent: Children

The law makes provisions for adopted children. When they have been legally adopted, they are considered heirs of the adopting parents but will not be considered heirs of ancestors of the adopting parents. Stepchildren and foster children will only inherit if they were legally adopted. Children born outside of a marriage may only be able to inherit from the mother, unless paternity is acknowledged or legally established. Grandchildren may inherit property in their parent's place if their parent (the decedent's child) died before the decedent.

Two Parts to a Loan

The promissory note: the borrower's personal promise to repay the lender for the loan The security instrument: a document that states what property the bank can seize if the borrower does not repay the loan

Deed of Trust (Not common in NY)

You may not be too familiar with this concept, and that's probably because we don't use the deed of trust that often in the state of New York. New York is a lien theory state. But what does that mean, and how is it different from other states? Let's get a broader view. A deed of trust, on the other hand, is a three-party instrument and is not commonly used in New York. The three parties in a deed of trust are: The trustor (mortgagor and trustor) The lender (mortgagee and beneficiary) The trustee What are the roles of the three parties in a deed of trust? The trustee (a third party) holds the deed of title on behalf of the lender (the beneficiary). The borrower (homebuyer) has equitable rights to the title. This means that the borrower could one day earn the title to their property (after they repay their loan). The beneficiary (the lender), through the trustee, has the right to the title. They cannot possess the property, but if the borrower defaults on payments, they can quickly seize the title through the trustee (third party). The deed of trust also includes fine print that requires the borrower to: Promptly pay principal and interest when due Pay to lender's escrow account or separately (by agreement with lender) property taxes and property insurance Keep insurance policies in force and acceptable to lender Occupy the property if that was the intent of the loan Maintain the property and not allow it to deteriorate Notify the lender if the loan is transferred and seek lender's prior approval Keep property free of hazardous substances in excess of small amounts

Bargain & Sale Deed with Covenants (special warranty deed)

only protects against defects that occurred while the grantor held title. The grantor warrants only that the property was not encumbered during the time they held title, except as noted in the deed, and that they have done nothing during ownership to cloud or damage the title. A bargain and sale deed is kinda like getting a bargain at a used car dealership. 🚗💨 The dealer can assure you that the car works and that nothing damaged it while it was under their care. The dealer vouches for its current condition, but makes no claim as to how the previous owner took care of it. They're also unlikely to be responsible for anything that happens to the vehicle in the future.

executor

the person identified in a will to carry out its provisions, including the disbursement of property An executor (executrix may be used for a female executor) is the person identified in a will to carry out its provisions, including the disbursement of property. After the heirs are established, the court gives the executor the authority to appraise the assets of the estate and satisfy all debts that are owed by the decedent. Real property specified in a will passes with the debts against it unless the will specifically states that the debt is to be paid from the estate. The executor is responsible for paying federal estate taxes, state inheritance taxes, and other claims (such as liens) payable against the estate. The remaining assets of the estate are distributed according to the provisions of the will.

intestate

with no will By law, the title to real estate and personal property of an intestate decedent passes to their heirs and will be distributed according to the laws of the state in which the property is located.