Chapter 16

Transfer of Ownership Rights and Interests

A. TITLE AND EVIDENCE OF GOOD AND MARKETABLE TITLE

DEFINITION OF TITLE

In Georgia, the title to real property is the means or the evidence by which an owner establishes rights in land.  The possession of legal title to land is entitlement to rights of ownership of that land, the minerals below the land, the air space above the land, and to some extent, the waters contained on or flowing through the land.

GOOD AND MARKETABLE TITLE

A good and marketable title is one that is legally sufficient and free from reasonable doubt of defects.  It is a title that a prudent buyer would accept and pay fair market value for.  A good and marketable title is one proven to be free of legal defects by all the means available to prove the quality of the title.

Contrary to popular belief, there is no written instrument that evidences a seller’s good and marketable title.  Usually, a seller will convey the title to the land by a warranty deed.  This deed contains a warranty under which the seller guarantees good title.  However, the warranty does not necessarily mean that the title is good and marketable.  It only means that the seller will be liable if the title is not good.  Consider a warranty on a product, such as a blender that a consumer purchases from a department store.  The warranty does not mean that the blender is in good working condition.  It means that if the blender is not in good working condition, the company will repair or replace it.

THE IMPORTANCE OF TITLE EXAMINATION

A prudent buyer would never buy real estate without receiving some assurance that the title to the real estate is satisfactory.  Similarly, a prudent lender would never give a loan using real estate as the collateral without obtaining some guarantees of good title.  This guarantee of good title is necessary even if the buyer obtains a general warranty deed because the quality of the warranty is only as good as the solvency of the seller.  If the seller moves out of state or becomes bankrupt, any warranties of title become worthless, or at least expensive and uncertain of enforcement.

Information on most of the matters affecting title to real property resides in the county courthouse of the county in which the property is located.  Some examples of matters which could affect the title to a parcel of real property include:

	(a)	security deeds and mortgages;
	(b)	restrictive covenants;
	(c)	condominium declarations and agreements;
	(d)	easements;
	(e)	liens for unpaid federal taxes;
	(f)	liens for unpaid county and municipal property taxes;
	(g)	estates of decedents who died owning the property in prior years;
	(h)	mechanics’ and materialmen’s liens for unpaid labor and material used to improve the property; and
	(i)	notices of pending litigation affecting the property, including divorces in which a spouse seeks to get title from the other in the divorce action.

The above list is merely a representative sample.   There are many other matters that can affect the quality of the potential buyer’s or lender’s title.  An examination of title protects buyers and lenders in arms’ length transactions conveying real property.  However, bear in mind there are some matters, such as zoning restrictions and environmental hazards, that a standard title examination would not disclose.

THE TITLE EXAMINATION

The title examiner begins by compiling a history of the ownership of the property.  The period covered by the search is set by the standards of the title insurance company insuring the transaction.   (The normal search period is 50 years, as recommended by Section 2.1 of the State Bar of Georgia Title Standards.)  The title examiner conducts this portion of the examination on the grantee (or reverse)  index of the Superior Court deed records in the county where the land lies.

Once the examiner has compiled a history of the title for the normal search period (a “back chain of title”), he or she examines the records of the grantor (or direct) index for conveyances made by the owners.  Here the examiner may find easements, deeds to secure debt, mechanics’ and materialmen’s liens, affidavits, and other title documents.  When the grantor search is complete, the examiner makes a search of other county records for divorces, lawsuits, judgments, federal tax liens, past due ad valorem taxes, notices of pending suits (lis pendens), and probate proceedings for any wills or estate administration.  The closing attorney or title insurance company then decides if the title is satisfactory and closing can proceed.  If the title is not satisfactory, title clearance work may be necessary.

TITLE INSURANCE

There are two types of title insurance: owner’s title insurance and lender’s (mortgagee’s) title insurance.  At most closings involving residential loans, the only policy the lender requires to be issued by the title insurance company is the lender’s policy.  It is necessary for the buyer to purchase an owner’s policy to get protection for his or her ownership equity since the lender’s policy only protects the lender.

The title insurance policy contains a description of the property, the terms of the policy, and a list of matters (called “exceptions”) not covered by the policy.  Usually, the matters not covered by the policy are those matters that are technical limitations on fee simple title, such as subdivision restrictive covenants and power company easements, which are acceptable limitations to the owner and lender.

 B. TRANSFER OF FREEHOLD RIGHTS

VOLUNTARY TRANSFER

Anyone who holds title to real property can transfer all or part of that title to another.   Transfer can take place through gift, sale, or will.  In a voluntary transfer, the owner can set the terms of the disposition within the bounds of the law.

VOLUNTARY TRANSFER BY DEED

The most common method of transfer of title is by deed.  In Georgia, a deed must be in writing, signed by the maker of the deed, and to be eligible for recordation, witnessed by at least two witnesses, one of whom must be a notary public.  The seller (grantor) must deliver the deed to the buyer (grantee).   The transaction must include a valuable consideration, with one exception: a deed of gift does not require a valuable consideration.  The intent to make a gift exempts the transaction from the normal requirement of consideration.

INVOLUNTARY TRANSFERS

Transfer of ownership can also occur against the will of the owner.  For example, an involuntary transfer occurs when the state takes a parcel of land to satisfy a tax lien.  The government also has the right to take property for public use, as when the government obtains an easement for purposes of public transportation.  In cases of this type of involuntary transfer, the government pays compensation to the owner.  The following discussion outlines several methods of involuntary transfer of ownership that occur in Georgia.

	(a)	PRESCRIPTIVE TITLE – Often in the State of Georgia, it is impossible to trace the ownership of the land to the original state grant.  The reasons for this difficulty range from negligent record keeping procedures to the burning of courthouse records.   Therefore, ways of establishing title have evolved to cover the situations when the owner cannot prove ownership during a particular period.  As mentioned above, for purposes of obtaining title insurance in Georgia, it is usually sufficient to go back only fifty years in a chain of ownership to prove title. There are also two recognized ways of establishing ownership when the owner may not have valid written proof of title. The first is “prescription” and the other (discussed below) is “adverse possession.” Prescription establishes title under a claim not supported by valid written evidence of title.  It requires possession of the property that did not originate fraudulently.  Possession must be public, continuous, exclusive, uninterrupted, peaceable, and not merely permissive.  Prescriptive title confers ownership in seven years when the claimant possesses flawed written evidence of title or evidence that is invalid for some reason.  The phrase “color of title” describes this type of evidence.  For example, Mrs. Arnold conveyed property to Mr. Brooks by warranty deed.  However, because Mrs. Arnold held imperfect title to the property herself, the transaction was flawed; and Mr. Brooks does not hold perfect title to the land.  Although the deed is flawed, it is considered “color of title.”  Therefore, Mr. Brooks can perfect his title after seven years through prescription.  (O.C.G.A. § 44‑5‑164).
	(b)	ADVERSE POSSESSION – Adverse possession is the acquisition of prescriptive title when the claimant does not have “color of title.” The requirements for establishing title by adverse possession are the same as those for title by prescription, except that the period required to establish title is twenty years.  (O.C.G.A. § 44‑5‑163).
	(c)	EMINENT DOMAIN – Eminent domain refers to the power of the state to reassert its ownership over the land, permanently or temporarily, for public use.  There must be due notice and a hearing on the matter following the equal protection and due process clauses of the Federal and State Constitutions, and the government must pay adequate and just compensation to the owner of land.  “Condemnation” is the name for the act of taking the property.
	(d)	FORFEITURE FOR CRIME – Normally, both state and federal laws prohibit the forfeiture of real property as a criminal penalty.  However, both state and federal RICO (Racketeer Influenced and Corrupt Organizations) Acts allow the seizure of property used in or acquired as a consequence of racketeer influenced activities.  The Georgia RICO statute allows the seizure of real property.  O.C.G.A. § 16-14-7.

C. DEEDS

INTRODUCTION

A transfer of title by deed is a “conveyance.”  A deed is simply a written instrument that transfers the title to real property from one party to another.  A deed:

	(a)	transfers ownership of the property,
	(b)	may or may not include guarantees on the quality of ownership,
	(c)	may include limitations on ownership,
	(d)	may create rights against adjoining property owners, and
	(e)	may create obligations to adjoining property owners.

REQUIREMENTS OF A VALID DEED

A valid deed includes all of the following elements:

	(a)	the deed must be in writing, purporting to convey title to land;
	(b)	the grantor (the person transferring the title) must be a person or legal entity having contractual powers (competent, if an individual, and properly created, if a legal entity such as a corporation);
	(c)	the grantee (the person receiving the title) must be a properly-created legal entity, or if a person, does not have to be competent (for example, a minor or insane person could be a valid grantee, but not a valid grantor);
	(d)	the deed must include words of conveyance such as “grant, bargain, sell, alien, and convey”;
	(e)	the deed must include a valid legal description of the land (see Chapter 27);
	(f)	the deed must contain the signature of the grantor;
	(g)	the deed must be delivered by the grantor to the grantee or someone acting on the grantee’s behalf;
	(h)	the deed must be given in exchange for good and valuable consideration (except that a deed of gift may be valid without consideration).

A deed is valid between the parties to the deed without any witnesses.  However, to be recorded in the public records and to be valid as against third parties, a deed requires two witnesses, one unofficial witness and one official witness.  Official witnesses under Georgia law include a notary public, a magistrate, a judge of a court of record, a clerk of Superior Court or his or her deputy, and a clerk of city court created by a special act or his or her deputy.  (O.C.G.A. § 44-2-15)

WARRANTY DEED

A warranty deed (sometimes called a “general warranty deed”) is a deed containing promises relating to the title, usually a general warranty.  The warranty deed in general use in the State of Georgia contains the following clause:

And the said Grantor will warrant and forever defend the right and title to the above described property unto the said Grantee against the claims of all persons whomsoever.

This language of general warranty means that the seller (Grantor) makes the following guarantees to the buyer (Grantee):

	(a)	a covenant of title, meaning the seller guarantees that legal title is vested in the seller and that the seller has the right to sell the property and transfer the title;
	(b)	a covenant of quiet enjoyment, meaning the seller guarantees that the buyer’s title will be free from adverse claims; and
	(c)	a covenant against encumbrances, meaning the seller guarantees that the title is free and clear from liens and encumbrances such as easements, deeds to secure debt, and tax liens.

LIMITED WARRANTY DEED

A limited warranty deed (known in some other states as a special warranty deed) is one that limits the scope of the warranty by certain provisions in the deed.  Theoretically, a limited warranty deed could contain any language limiting the promises of warranty offered by the grantor.  The form in common use in Georgia has a limited warranty similar to the following:

And the said Grantor will warrant and forever defend the right and title to the above described property against the claims of all persons owning, holding, or claiming by, through and under the said Grantor.

This language has the effect of saying “I warrant the title against actions I may have taken, but I do not warrant the title against any claims that arose before my ownership.” This language is a major limitation on the grantor’s liability.  A seller who wishes to assume as little liability as possible and often provides for a limited warranty deed as the deed of conveyance in the sales contract.  The buyer can cover the lowered liability of the seller by obtaining title insurance.  Limited warranty deeds are frequently used in commercial transactions and occasionally in certain residential transactions.

QUIT CLAIM DEED

A quit claim deed conveys to the grantee whatever interest the grantor has in the property, without any warranties of title.  If the grantor has fee simple title, the grantee will receive fee simple title.  If the grantor has nothing, the grantee will receive nothing.  The quit claim deed has many uses in instances where the grantor does not wish to warrant the title.  For example, grantors often use quit claim deeds when they are not certain of the quality of the title.  This situation could occur in clearing up the estate of a deceased person or in settling a boundary dispute when the property line is not clear.  In addition, lenders often use quit claim deeds to satisfy deeds to secure debt when the debt is paid, particularly if the original security deed is lost and thus cannot be cancelled and re-recorded.

EXECUTOR’S DEED

An executor’s deed is a deed from the executor of a deceased person’s estate.  An executor is the person appointed to settle the estate of a person who dies with a valid will.  The executor is sworn in by the Probate Court of the county where the decedent died (if the decedent was a resident of Georgia).  A Georgia executor typically has court authority to dispose of the decedent’s property according to the will.  An executor’s deed does not contain any promises of warranty.

ADMINISTRATOR’S DEED

The administrator of an estate is a person appointed by the Probate Court to dispose of the property of a Georgia decedent who did not leave a valid will.  Usually, the law imposes more formalities on an administrator than on an executor.  A valid will can relieve most of the legal formalities.  The additional formalities required of an administrator may include getting court approval to sell the decedent’s real property.  The formalities can make the procedure of buying from an administrator very long and frustrating.  Like an executor’s deed, an administrator’s deed does not contain any promises of warranty.

 D. RELATED MATTERS

SIGNATURE OF HUSBAND OR WIFE

When the title to real property is vested exclusively in one spouse, the other spouse need not sign any deeds or conveyances.  However, where one spouse acquired title from the other, closing attorneys may require both spouses to sign the deed, to clear up any problems of title being vested in one spouse and possession in the other.  Of course, if both spouses hold title, whether as tenants in common or joint tenants, both must sign deeds and conveyances.

SIGNATURE ON BEHALF OF CORPORATION

A deed from a corporation must be signed in the name of the corporation by its duly authorized officers.  The deed must also bear the seal of the corporation in some circumstances, depending on which officer(s) have executed the deed.  The formalities of corporate authority are complex, and a careful closing attorney may require more than the minimum legal requirements.

POWER OF ATTORNEY

The law allows the execution of deeds and other contracts by power of attorney, by which a legally competent person delegates authority to another person to act on his or her behalf.  The parties to a sales contract occasionally use this process for signing deeds and other closing documents.  An owner who cannot attend a closing executes a power of attorney to another person to sign closing documents.  For signing deeds, the power of attorney must be in writing and be executed with the same formality required for a deed, that is, under seal and signed before two witnesses, one unofficial and one official.  The power of attorney must also contain a sufficient legal description of the land involved in the transaction.  Despite the legality, some lenders will not accept deeds or loan documents signed at closing with a power of attorney, but will insist upon these instruments being signed by the actual party or parties involved.

(c) Copyright 2006 Georgia Real Estate Commission and Appraisers Board. All rights reserved.