McAfee & Taft AgLINC Ag & Equine Industry Newsletter - May 2013: What does your deed say?

by McAfee & Taft
Contact

McAfee & Taft regularly represents clients in connection with the purchase, sale and financing of agricultural real estate. Issues that arise in these transactions include all the issues that are routinely attendant to real estate transactions, such as assurance of title, surveys, boundary issues, environmental issues, and the handling of improvements.

In the agriculture industry, land makes up a significant portion of the assets of an agribusiness. In a majority of circumstances, especially in production agriculture, land is the most valuable asset the company (or family) owns. My great, great uncle Hazen John Marshall first settled the family farm in Hennessey, Oklahoma, in the 89er Land Run, and today my grandfather Hazen Earl Marshall still lives on a part of that land. This doesn’t happen by mere possession of the land. It occurs through deeds evidencing the transfer from one owner to the next.

In transfers between family members (such as what I described above), there may not be much thought given to the content of the deed. While there may be little risk in transfers between family members, it is worthwhile to understand the nuances between the various types of deeds, and to completely understand what your deed says. This is particularly important when land is acquired from an unrelated third party. In this situation, whether you are the grantor or the grantee, you need to know the type of deed that will be used.

There are three general types of deeds: general warranty deeds (sometimes referred to simply as a “warranty deed”), special warranty deeds, and quitclaim deeds. Understanding the differences in these three types of deeds is critical to understanding your obligations as a grantor and rights as a grantee.

A general warranty deed conveys to the grantee the whole interest of the grantor in the subject property. It also contains certain implied warranties of the grantor. In Oklahoma (and, more or less, most other states), those implied warranties are that:

  1. The grantor has title and possession of the subject property,
  2. The grantor has the right and authority to convey the subject property to the grantee,
  3. There are no encumbrances on the subject property other than what has previously been disclosed or is mentioned in the deed,
  4. The grantee will have “quiet and peaceable possession” of the subject property, and
  5. The grantor will defend the title to the subject property.

While instrumental to determining the type of deed being used, these implied warranties are not likely to be found in the text of the deed. Instead, a few simple statutory words are inserted, usually following the description of the land, which effectively incorporate these implied warranties without the necessity of specifically stating them in the text of the deed. Indeed, 16 Okla. Stat. § 19 provides that these implied warranties will be incorporated into a deed if the words “and warrant title to the same” are used in connection with the grantor’s conveyance. Under a general warranty deed, the grantor warrants and covenants to defend title against claims and demands in the subject property by all parties claiming rights arising prior to the transfer, whether caused by grantor or otherwise. Although the grantor warrants that there are no encumbrances or liens on the property, it is customary practice for a grantor to list, as an exhibit to the deed, certain exceptions to the implied warranty, such as easements burdening the property. In such a case, the grantor is saying he has clear title, except for the matters listed on that exhibit. These are frequently called the “permitted exceptions” or “permitted encumbrances.” When grantees are not represented by counsel, it is common for the exhibit (or sometimes a simple statement in the text) to state that the “permitted exceptions” to be something like “all reservations, easements, rights of way, restrictions, and covenants of record” or “all matters of record.” In a few circumstances this is harmless language, but many times there are matters of record that the grantee would like removed prior to taking title the property.

Special warranty deeds are nearly identical in concept to a general warranty deed with one significant difference. Under a special warranty deed, the grantor only warrants and covenants to defend the title against claims and demands as against the grantor only, and not otherwise. The net effect of this limitation is to relieve the grantor from any liability for claims that do not arise through him. For example, if the property is subject to a mortgage by a predecessor in title, the existence of the mortgage wouldn’t be a breach of the grantor’s special warranty. Like a general warranty deed, the implied warranties are not likely to appear in the text of the deed, but instead are incorporated with the same statutory words “and warrant title to the same” but with additional language such as “by and through grantor, and not otherwise” or substantially similar language. Despite the limited warranty given by a grantor under a special warranty deed, most special warranty deeds list exceptions to the grantor’s warranty that the property is free of encumbrances and liens. This is simply a “belts and suspenders” approach to removing all doubt that the grantee is informed of the exceptions and matters of record and that the grantor will not have liability for them. Knowing this, it is very important for grantees to carefully review the permitted exceptions exhibit to general and special warranty deeds.

Quitclaim deeds do not contain any implied warranties or covenants. Under a quitclaim deed, the grantor simply transfers its whole interest in the described real estate, but makes no covenant or representation that the grantor in fact has any interest in the subject property. Additionally, a quitclaim deed effectively “cuts off” the grantee’s benefit of all prior grantors’ implied warranties. For this reason, quitclaim deeds are rarely used in third-party transfers.

The type of deed you use will have an impact on the obligations of the grantor and rights of the grantee in the event a title problem arises with the property. Under a general warranty deed, if a grantee encounters a title issue that was caused prior to the grantee’s acquisition of the land, the grantee can make a claim against its grantor regardless of who created the title issue. Under a special warranty deed, the grantee would only be able to make a claim against its grantor if it were in fact the grantor that created the title issue. Under a quitclaim deed, the grantee would have no claims against its grantor or any prior grantor. These subtle distinctions are why the type of deed to be used can itself be a point of negotiation in land sales and purchases between unrelated third parties. Of course, in most situations there will also be a real estate purchase agreement and title insurance for the buyer that will also be an avenue for the grantee to recover its losses in the event of a title issue. In the agriculture industry, however, sometimes the only document relating to the transfer is the deed. Stay tuned in the upcoming editions of the AgLINC for an explanation of real estate purchase agreements and title insurance.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McAfee & Taft | Attorney Advertising

Written by:

McAfee & Taft
Contact
more
less

McAfee & Taft on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!