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When shopping around on property aggregator platforms, you may come across a transaction with the phrase “insured non-residential grant deed” next to it. In most cases, the real estate in question will be priced way lower than the market value, triggering all kinds of questions and sometimes reservations about acquiring the property. If this sounds all familiar, you’ll want to read this post before making any buying decision.
“Insured non-residential grant deed” means that a type of warranty deed known as a grant deed will be used in the transfer of ownership to the non-residential property in question, but with the extra protection of title insurance.
You will need a deed if you are looking for the best ways to invest 50k in real estate and conduct real estate transactions involving property. The rest of this article will go a little deeper to help you understand the meaning of “insured non-residential grant deed.” Let’s get started.
The Lowdown on Grant Deeds
To grasp what an insured non-residential grant deed means, you need to understand grant deeds in general because that term is the core of today’s discussion. So here, we’ll lay some groundwork for the more technical stuff we’ll be covering later on.
Let’s start by defining a deed and explore the different types as we work our way to grant deeds.
What is a Deed?
A deed refers to a legal document meant to convey title to a property from one party to another. The involved parties can be individuals, trusts, business entities, or estates. The party looking to transfer the property title is known as a grantor, while the recipient is known as a grantee (pay attention to these terms because you’ll encounter them a lot in this article). While it’s not difficult to get a mortgage loan, deeds often can be confusing.
Types of Deeds
Relevant to our discussion are two basic types of deeds, namely, warranty deeds and quitclaim deeds. The grantee doesn’t have any legally binding guarantees that the grantor holds interest in the property with quitclaim deeds. This means that the grantee won’t have any legal course if they later discover that the grantor isn’t the actual titleholder to the house or property or unearths undisclosed problems with the title.
Quitclaim deeds are used often with family members (primarily in divorce practice) where a family member usually transfers a share of their personal property’s ownership. This is common for home sales, and the quitclaim deed is recorded with the County. Some of the best 1031 exchange companies near me deal with deeds often.
Warranty deeds come in two types: grant deeds and general warranty deeds.
With both types, the grantor provides the grantee with one or several legally binding assurances (AKA warranties) regarding the title covering the property’s history. The main difference between a warranty deed and quitclaim is the type of assurances offered to the grantee. To illustrate, let’s discuss each separately.
General Warranty Deeds
This type of deed provides the most protection to the buyer/grantee. To be specific, it offers legally binding assurances that there aren’t any hidden title problems like encumbrances, liens, and debts一including those that may arise from the time before the grantor bought the property. In addition, they offer a guarantee to the new owner of the house.
It also includes a provision that the grantor will pay any legal costs associated with addressing title problems in court that may arise after the sale. Essentially, the seller is saying, “I own the property, have every right to sell it, and that it’s free of hidden title problems. In case such problems arise, I’ll pay the costs associated with ironing out the details in court.”
The warranty deed and property title are recorded when selling or when you transfer property at the County Register of Deeds office. They also document a legal description for properties.
In some states, these are referred to as limited warranty deeds or special warranty deeds. Typically, deeds of this type offer the grantee some but not as much protection as general warranty deeds.
Typically, a grant deed only provides two legally enforceable assurances:
- That the seller is the actual holder of the title to the property (i.e., he/she hasn’t transferred the deed to anyone else)
- That there aren’t any title problems dated within the timeframe that the grantor has owned the property
A grant deed doesn’t provide any warranties for title problems dated before the seller acquired the property. Also, the grantor doesn’t make any promises to cover the attorney and legal costs associated with defending title claims that may arise after the transaction.
Grant deeds are commonly issued during the sale of commercial property and when trusts and estates are transferring ownership of property. In such situations, the grantor may not be aware of what happened with the property before taking over ownership. As such, they can’t offer any guarantee against title issues that may have cropped up before the date they acquired the property.
Important Note: With both general warranty deeds and grant deeds, there may be exceptions for some encumbrances on the property. Typical examples of these include easements, mortgages, outstanding property taxes, and other issues like subdivision deed restrictions. If any of these exceptions appear on the deed, they won’t be subject to warranties.
What is an Insured Non-Residential Grant Deed?
Having defined a grant deed, let’s delve deeper into the main subject referenced. So far, you know you know what a grant deed is and how it differs from other closely related deed types. All that remains is defining the different parts of that statement: “insured and nonresidential.”
- “Non-residential” is pretty self-explanatory; we won’t dwell on it. What needs explanation is the “insured” part of that statement. To help you understand it, we need to review the role of title insurance in real estate transactions in general before we zero in on its importance in deals involving a grant deed.
This way, we can put everything together to form a comprehensive definition of an insured non-residential grant deed and understand its implications.
What is Title Insurance?
Title insurance refers to a unique kind of insurance that cushions the parties involved in a real estate transaction against financial loss that may arise from title-related problems. Some of the most common title problems covered under this type of insurance include when:
- The grantor isn’t the actual owner of the property for which the deed was conveyed based on research.
- The grantor once owned the property but has sold some personal share or all of it to another party.
- There are outstanding mortgages or any other type of liens against the real estate that would give creditors a legal right to seize it through foreclosure.
- There are unsettled property tax liens or other tax-related encumbrances that tax lien purchasers or tax enforcement authorities can leverage to foreclose the property.
- There are ownership gaps in the past title chain. For instance, deceased past titleholders whose estates are yet to be admitted to probate.
If a legal dispute is born out of any of these title problems, the title insurance company will be the responsible party for defending the lawsuit. If it loses, it’ll be liable for any arising claims.
Title insurance is often misunderstood. The general assumption is that as long as a deed meets every recording requirement and holds under state law, there’s nothing else to worry about. However, the truth is that even if the parties involved in the transaction don’t intend to purchase title insurance, the title needs to meet insurance requirements.
What Are Insurance Requirements?
What do we mean by insurance requirements? Well, in any real estate transfer, two sets of conditions apply. These include:
- Legal requirements: These will depend on the contract laws in your state. Generally, they have to do with the type of language and format to use in a deed.
- Practical requirements: This is where title insurance comes in. Essentially, applicable requirements are the standards that a deed has to meet to qualify for title insurance.
The specific practical requirements vary by state and the insurance company. In the case of the insurance companies, these requirements are determined by each provider’s underwriting guidelines, with policies issued exclusively on real estate transactions that meet those guidelines.
Sometimes, insurance requirements are more critical than state legal requirements. For instance, if no company will issue title insurance on a particular deed, it might not matter whether it meets the state legal requirements. Why? Because title insurance has a significant impact on the property value.
If a title isn’t insurable, it won’t sell for the full market value. Even getting a mortgage from a foreign bank won’t matter because title has to be insurable. Any potential buyer would require legal action to clear the title of any existing issues. Due to this legal liability, no informed buyer would be willing to pay the full market price for a property whose title isn’t insurable.
It’s worth noting that purchasing property with a non-insurable title won’t have any short-term effects on you as the buyer. You can acquire such property and start using it as soon as you’d like. However, it’ll be worth less than the market value due to the title problems. If you decide to sell it or use it to get a mortgage, you’ll get less money than you would if the title was insurable.
How Does Title Insurance Work?
Before the insurance company issues a policy on a title, it uses an abstractor to do “a background check.” The abstractor searches the relevant public records to determine whether there are issues with previous conveyances of the property. This process is referred to as verifying the chain of title and is all about finding a link between one ownership document to the next.
For instance, if the deed was transferred to Joe Allan at a certain point in time, the abstractor will expect to see a deed from this person later. If they find the latter deed, they’ll check to confirm that the same name appears on it and that the property was conveyed per the law.
When verifying the chain of title, the abstractor will also go through the legal descriptions used in each instance the property was transferred to ascertain that the correct property was conveyed throughout. Usually, improper legal descriptions cause concern about property ownership, so this kind of check is essential.
Lastly, the instructor will check for evidence of encumbrances on the property. If the current deed holder took a mortgage on the property or attached any other type of lien to it, the abstractor will investigate whether the mortgage/lien was settled. This step helps ensure that the property is free of liens that may negatively affect its value.
Once the chain of title evaluation is complete, the abstractor compiles a report of his/her findings and submits it to the insurance company. A title agent then reviews this report. Depending on its contents, they may draft a title policy that can be either an owner’s policy or a lender’s policy.
An owner’s policy ensures that the property owner is the actual titleholder to the real estate. It also assures that the title doesn’t have any encumbrances or liens against it except those outlined in the title policy. On the other hand, a lender’s policy protects lenders from title problems that may impact their collateral in real estate.
What’s the General Role of Title Insurance in Real Estate Transactions?
Essentially, title insurance shifts the risk of financial loss from the parties involved in a real estate transaction to the insurance company. Without this kind of insurance, the involved parties can only look to each other to solve any legal issues arising from the transfer of property ownership. Every real estate buyer, even a Section 8 Landlord, needs title insurance.
If the grantor transfers property with a warranty deed, the grantee may have legal recourse in specific title issues. However, if the grantor is challenging to locate or insolvent, this may not always be the most effective remedy for the grantee. That’s because, from his/her perspective, the prospect of locking horns in court in the future over a transaction done years ago isn’t attractive.
With title insurance, the risk of financial loss rests squarely on the insurance company and not the seller or buyer. These companies are usually set up to be able to recognize title issues before they manifest. Since they must do that when determining whether to issue a policy on any deed, they’re liable for any unidentified title defects that may come up later.
Title insurance companies benefit the buyer and seller in that:
- The buyer doesn’t have to rely solely on the seller’s financial status.
- The seller doesn’t need to worry about the possibility of future legal liability (unless they issued a warrant of a title).
Generally, deed grantees and grantors would instead shift title risk to an insurance company than shoulder it. Title insurance is one of the most popular ways to supplement the protection offered by warranty deeds in residential and nonresidential real estate closings. It can even be a substitute for a warranty deed’s protection.
In addition to shifting the risk from the buyer and the seller in a real estate transaction, title insurance protects property value. Normally unlicensed real estate assistants and licensed agents do not deal with title, rather that is the role of the title company. When a title is insured/insurable, it assures the buyer that the total value of the property is passed to him/her. This comes in handy if the buyer intends to sell the property or use it to secure financing in the future.
What’s the Role of Title Insurance in Non-residential Grant Deeds?
As we saw earlier, each of the two types of warranty deeds allocates risk via legally enforceable assurances. But with grant deeds, the buyers shoulder more risk than when general warranty deeds are conveyed. Specifically, the grantee isn’t assured that the title is free of issues dated before the grantor bought the property, and neither is he/she protected from legal liability. There could be an interest within the history of the property’s record search.
While there are a lot of ways how to save money for a house fast, title insurance is an expense you will have to pay. Since a grant deed offers less comprehensive buyer protection, title insurance is particularly essential in real estate transactions where this type of deed is conveyed. Insurance helps seal some of the loopholes in a grant deed’s buyer protection. To help you understand how this happens, we need to take a step back to discuss how title insurance works.
Usually, the insurance company will thoroughly investigate the title for owner issues before accepting to issue a policy. During this process, they’ll likely uncover title problems, helping reduce the chances of undisclosed title issues cropping up in the future. This means that the sheer fact that a grant deed qualified for title insurance is substantial assurance that it has little risk of legal complications stemming from past ownership.
The other way title insurance adds to the protection offered by a nonresidential grant deed is by transferring risk from both the deed grantor and grantee to the insurance company. If title issues crop up in the future, the grantee can sue the insurance company instead of the grantor.
This is a win/win for both parties involved in the real estate transaction in that:
- The grantee won’t be too reliant on the grantor’s financial status in case of a claim against the property.
- The grantor will have less risk of getting sued over title issues.
What Does “Insured Nonresidential Grant Deed” Mean?
Having defined a grant deed and discussed the role of insurance in real estate transactions involving this type of ownership transfer document, all that remains is to piece everything together as promised earlier. So without further ado, let’s do that.
When an insured non-residential grant deed is issued in the transfer of commercial property ownership, it means that:
- The property doesn’t have any attached liens and encumbrances. If any, they’ll be clearly stated.
- The property seller has the legal right to sell the property.
- The property is free of title problems from the past.
- The title insurance company will take responsibility for claims related to title issues and debt that the abstractor might have missed during the evaluation process.
This is different from when a non-insured nonresidential grant deed is used to convey property ownership because, without insurance, a grant deed only provides two assurances:
- That the seller must own the property and hasn’t sold it to anyone else
- That the property hasn’t incurred title problems in the period, the seller has held the title to it
Which Deed Do You Need to Transfer Property?
If you’re looking to transfer your home or commercial property, a few different deeds may be correct for the situation.
Types of Deeds to Transfer Property
- Non-Residential Grant Deed: This type of deed is designed for transferring real estate between parties who don’t intend to reside on the land in question and does not require insurance.
- Qualified Residential Grant Deed: This type of deed is designed for transferring real estate that will be used as a residence by the person receiving title to it.
- Insured Non-Residential Grant Deed: To use this type of deed, both parties must have an insurable interest in the land, and the owner also must be insured.
- Qualified Residential Grant Deed with Insurable Interest: This type of deed is designed for transferring real estate that will be used as a residence by the person receiving title to it and also requires insurance.
- Residential Quitclaim Deed: If one party owns the land but does not have an insurable interest, a residential quitclaim deed is their best option.
- Residential Grant Deed: This type of deed is designed for transferring real estate that will be used as a residence by the person receiving title to it.
- Commercial Quitclaim Deed: If one party owns the land but does not have an insurable interest, this type of deed should be used.
- Commercial Grant Deed: This type of deed is designed for transferring land that will be used as a business by the person receiving title to it.
While there are a lot of affordable housing options for cheap living, you will always need a deed. A warranty deed is essential to transfer property. Hopefully, you’ve learned a few things about nonresidential grant deeds, and the critical role title insurance plays in real estate transactions involving such ownership documents. If you’re looking to use this information to make a property purchase decision, be sure to supplement it with your lawyer’s advice because state laws vary. So does the degree of coverage offered by each title insurance provider. Best of luck!