Random Thoughts abut Real Estate Conveyances
By Edgar T. Farmer*
Those involved in the sale and acquisition of real estate are generally aware that title to the property in question passes by way of a writing known as a deed. However for most the drafting and content of such an instrument are of little concern. If the deed finds favor with a title company and the attorney supervising the closing, quite often no further thought is given to the matter. This is unfortunate, as for most individuals the purchase of real estate is the major expense of a lifetime. Thus those involved should be aware of how the instrument passing title came to be.
In an effort to sort through the conveyancing jungle the following is offered as a rather cursory, unorganized and unannotated review of a number of concerns and details underlying the creation of deeds in particular, and real estate transactions in general.
General Warranty Deeds:
A general warranty deed carries with it the right to after acquired title, and the covenants of the Grantor generally include the following:
a. Grantor has an indefeasible estate in fee simple and good right to convey.
b. The premises are free and clear of any encumbrance, with the exception of those currently of record or specified in the deed.
c. Grantor will warrant and defend the title against the lawful claims of all persons.
Special Warranty Deeds:
A special warranty deed, often simply called a "warranty deed," carries after acquired title; but, its warranties are limited to the demands of those claiming under the Grantor. Thus, a full title is not warranted, and the instrument speaks only to such title as the Grantor holds and actions taken while the Grantor was the owner.
Quit Claim Deeds:
A quit claim deed is the least desirable form of conveyance. It carries no after acquired title, and implies no covenants or warranties whatsoever. Thus a quit claim deed simply conveys whatever title, if any, the Grantor may have. A quit claim deed should never be accepted as the sole conveyance in connection with a purchase, and is used primarily to correct possible technical defects in title.
Marriage:
Should the Grantor be married, even though the property to be sold is held in his or her name alone, the spouse’s signature is necessary, or a waiver of marital rights should be obtained. The same would be true in connection with the execution of a deed of trust encumbering the property. One should also note that, for purposes of dissolution, property which is owned by one spouse alone, and then placed in the couple’s joint names, will be viewed as marital property. In addition, in Missouri, real estate acquired by husband and wife in joint names will be presumed to create a tenancy by the entirety.
Minors:
While minors have the ability to take title to real estate such a conveyance is obviously ill-advised, as minors normally do not have the power to convey. Conveyances on behalf of minors may, of course, be made by court appointed guardians; and, under certain circumstances, a minor who is married to an adult has the legal capacity to join in a conveyance with his or her spouse. However it should be noted that deeds executed by minors are voidable rather than void. Such deeds become binding on the minor unless disaffirmed within two years after the age of majority. The age of majority in Missouri currently is eighteen.
Incompetents:
Incompetents, while also having the right to acquire real estate, are incapable of conveying realty other than through a court appointed guardian. The competency of a Grantor is often a question of fact, and it may well be an over simplification to presume that an individual remains competent until there has been a formal adjudication.
City of St. Louis Ordinance Requirement:
The City of St. Louis, (unlike any other county in the State) requires that deeds and deeds of trust must be signed by all of the parties. In the case of a deed, should the Grantee not wish to join in the instrument itself, a special separate form may be used.
Execution by Corporations:
While an attestation by the secretary or an assistant secretary is common, such an attestation is not required by statute; however it may be mandated by the Articles or the Bylaws, which should be reviewed. It is also wise to require a corporate resolution authorizing the sale and the execution of the deed.
Partnerships:
While such was not the case at common law, Missouri Partnerships (general and limited) may now acquire and convey real estate. In both cases a partnership resolution should be required authorizing the conveyance and the execution of the deed. One would also be well advised to review the Articles of Partnership and any Partnership Agreement prior to accepting the deed.
Powers of Attorney:
While durable powers of attorney no longer need be recorded, the situation is otherwise in the case of a power of attorney which is used to authorize the attorney-in-fact to execute a deed. In addition, while the durable power of attorney statute now provides for general powers, a specific reference to the authority to sell real estate should be included in the power of attorney itself. If the identity of the real estate is known, it would also be preferable to have the legal description included in the power.
Loan Assumptions:
Many borrowers, on selling their homes, simply permit the purchaser to take title "subject to" an existing deed of trust. In such a case, should the purchaser subsequently default, the original borrowers remain liable on the Note even though they no longer own the property. This result can, in many instances, be avoided through the use of assumption agreements, releases and other similar agreements.
Tax Stamps:
At one time the Federal government assessed a tax on the transfer of real estate. The Federal tax was abolished many years ago; and as a result, almost immediately, many states supplemented the Federal requirement with their own local transfer taxes. Missouri, however, did not take such action; and, thus, Missouri presently assesses no tax on the transfer of real estate by deed. Nonetheless, where other states have enacted such transfer charges, the amounts can be rather substantial. In this regard, the transfer taxes assessed by Illinois and Kansas should be carefully noted.
Witnesses:
Missouri does not require witnesses to the execution of deeds, save for a situation wherein a Grantor has signed the instrument by way of a mark. However many other states do require witnesses, with some even mandating the inclusion of the name or signature of the scrivener. Where the property is located outside of Missouri, the peculiar requirements of other jurisdictions should be particularly noted, as should any special conditions relating to deeds executed in foreign countries.
Subdivision Restrictions:
The conditions, covenants and restrictions of record in connection with many subdivisions, as well as local zoning or other ordinances, may have an impact on conveyancing, subdividing, use and lot size. These requirements and ordinances should be carefully noted.
Methamphetamine Production:
If the property to be sold was used as a site for Methamphetamine production the seller must disclose such use (if known) to the purchaser, even if the persons involved in the production were not convicted. In addition, a similar disclosure must be made if the premises were the place of residence of a person convicted of certain drug-related crimes.
Aliens and Foreign Corporations as Grantees:
For the most part aliens and foreign corporations do have authority to acquire and convey real estate in Missouri; however, in the case of such Grantees, certain limitations have been imposed on aliens and foreign corporations insofar as the holding of agricultural land is concerned. Should the situation warrant, these limitations should be reviewed most carefully.
Title Review:
Before accepting a deed, of whatever nature, it is essential that the potential Grantee be aware of the extent and condition of the interest he or she is acquiring. Full assurance in this regard can only be guaranteed by a thorough review of the title to the property in question. Such a review is best made by a title company which would then, hopefully, issue a title commitment. Should a satisfactory commitment not be forthcoming, one might well seriously question the wisdom of moving forward with the transaction.
Home Sales:
Under the Taxpayer Relief Act of 1997 up to $250,000 of home sale profits are tax free. The exclusion is doubled to $500,000 for married persons filing jointly. The exclusion, which can be used only once every two years, will result in totally tax-free home sale profits for the vast majority of owners who sell at a gain. The capital gain exclusion on the sale of a residence also applies to real estate held in grantor trusts.
Probate Inventory:
Street addresses must now be included in the legal descriptions of all real property listed in the inventory. In the case of rural land the inventory must also contain the popular name of the property, if any, plus the direction and distance from the nearest town.
Federal Tax Liens – Disclaimers:
The United States Supreme Court has resolved a conflict among the Circuits in holding that a federal tax lien can be levied against property validly disclaimed under state law. In so holding, the Court reasoned that the lien and levy provisions of the Internal Revenue Code are broad and reveal an intent “to reach every interest in property that a taxpayer might have.” The Court held that federal, not state, law controls whether a taxpayer has a beneficial interest in property subject to levy for unpaid federal taxes.