Estate planning lawyers learn about deeds

By Roberta M. Gubbins

Legal News

"As part of our practice as estate planning lawyers, we do a lot of deeds. Jeff Hicks, of Hicks and Mullett, specialists in real property law, is here to talk about the legal effects of various deeds and how they affect our practice in Michigan," said Ryan Nelson, introducing Hicks to the members of the Probate Section of the Ingham County Bar Association who gathered recently at Cooley Law School in Lansing.

Warranty deeds, quitclaim deeds, and covenant deeds or deed "C" are the three deeds commonly used in Michigan.

"Warranty deeds, the most common deed, guarantees to the buyer that there are no exceptions to the title and that the buyer is receiving full interest in the property or, as we learned in law school, all the sticks in the bundle." Some points to remember about warranty deeds:

* The deed must contain the word warrant in the body of the deed; as long as the document uses the word warrant, it is considered a warranty deed regardless of its title.

* The deed must state that the owner owns the property, has the right to convey it, guarantees quiet possession of the property, that the property is free from all encumbrances and that the owner will warrant and defend the title against all lawful claims.

"Under case law, the owner must defend against all 'lawful' claims against the property. The courts have defined 'lawful' claims as demands recognized by law and supported by rightful and superior interests such as adverse possession." In situations where someone other than the owner such as a personal representative of an estate is selling the property, the right to convey will take the form of a statement asserting they have that right."

In a situation where heirs to the property are unable to agree on its sale, "we asked the judge to order that one heir could sign on behalf of the other, because we knew that there was no way we could get the aggrieved heir to show up at closing. In that instance the covenant of the right to convey would be supported by court order attached to the deed," Hicks said.

The covenant against encumbrances such as construction liens, tax liens, etc. is personal. "Case law says that this covenant does not include a right to defend--however, if you buy a piece of property and suddenly someone appears and tells you that they have a right to harvest a stand of trees on your property, you will go back to your grantor and he doesn't agree to defend you, you will file suit and force his hand."

The statute of limitations on claims for a breach of the covenant of warranty, which is the agreement by the seller to defend the title against all lawful claims, is ten years. "Damages under such situations can be determined using the fair market value of the property with and without the encumbrance, which will create a dollar figure. The encumbrance is rectified before the case is brought, the damages are limited to whatever was necessary to remove the encumbrance such as attorney fees, your time and other expenses created during the course of the action."

Quitclaim deeds only convey to the purchaser the interests in the property held by the seller and do not transfer title free and clear of any exceptions or encumbrances. It is a deed used when you do not want to go to the trouble of a title search and/or wish to protect yourself from potential liabilities for liens on the property.

"A buyer who takes a quitclaim deed for a piece of property already sold by the seller has a piece of paper that is not worth the paper it is printed on. No warranties pass with a quitclaim deed," said Hicks.

Limited warranty deeds are illegal in Michigan. In 1931, Michigan enacted a statute making it a misdemeanor for any person to "print, sell or keep for sale any blank forms of deeds containing the words 'warranty deed' unless the deed is a "absolute warranty" deed. "A Covenant deed or Deed C, which only guarantee that the title is clear with some limitation on the title, gets around this prohibition against limited warranty deeds. The deed includes covenants to the buyer and expands on the quitclaim deed but doesn't go as far as the warranty deed."

A fiduciary deed is used when trustees or personal representatives of an estate are selling property. "These deeds do not bind the fiduciary personally, they bind the estate or trust. A Ladybird deed is another example of a deed as an estate planning device. The Ladybird deed or transfer on death deed is a modified quitclaim or warranty deed that grants a life estate to the grantor and the remainder to a named person."

Jeff Hicks, of Hicks & Mullett, may be reached at (517) 321-9770.

Published: Thu, Jan 7, 2010