A “deed” is a document which meets certain legal requirements and which has the effect of transferring ownership or some other interest in land. A deed is used to determine “title” to land; that is, who has an ownership interest in land. The title to land in Arizona depends upon the nature of the deeds used in the transactions affecting the land.
Arizona real property law is a mixture of both laws enacted by the Arizona legislature (statutory law) and the English common law. The English feudal system has left its traces upon Arizona real property law. An understanding of these historical origins facilitates an understanding of the requirements for a proper and effective deed.
Deeds to Arizona real property must be in a certain form to be valid. Many people think they can simply get a form and fill in a few blanks to create a valid deed. Often, what they are doing is creating a problem which will require a lawsuit to resolve. There are certain requirements and formalities for the words of conveyance, for the signature, for the size of the paper used, for the size of the font, and the margins on the page. Every deed or conveyance of real property must be signed by the grantor and must be duly acknowledged before some officer authorized to take acknowledgments. Some deeds require a disclosure of certain names and addresses.
In addition to the proper form, Arizona deeds must be properly delivered, properly recorded and the land must be properly described. Defects in the delivery, recordation or description may result in the failure of the conveyance or in other serious adverse consequences.
In Arizona, every deed presented for recording requires the concurrent submission of an “Affidavit of Value,” unless a specific exemption applies. People who claim an exemption to which they are not entitled, or who otherwise list false information on the document, commit a crime. We often see people doing this; it is one of the pitfalls of acting as your own attorney. The Affidavit of Value, like the deed, is a public record.
In addition to the technical requirements for a deed, there are more substantial issues that must be considered. For example, if the deed involves more than one person granting the interest in land (called a “grantor”) or more than one person receiving the interest in land (called a “grantee”), consideration must be given to the nature of the interest each person has or will receive. The more people involved in a deed, the more complex it becomes.
Tax considerations are also involved in deeds. Certain methods of holding title may result in significant tax savings such as the decision to hold title as community property instead of in some other manner. Tax considerations come into play when someone’s name is added to a deed.
For example, it is a very common (but unwise) method of estate planning for a parent to add a child’s name to a deed. The consequence of this act is often that a gift of an interest in land has been made. If the value of the gift exceeds a certain threshold a gift tax return must be filed with the Internal Revenue service. If the gift tax return is not timely filed, penalties and interest may begin to accrue.
The marital status of a person named in a deed is an important consideration in Arizona, for a number of reasons. Whether title is held as tenants in common, with a right of survivorship, or otherwise may have a substantial and everlasting effect. Certain types of deed require certain language in the document. Changing a word, misspelling a word, or omitting a word can result in unwanted consequences.
There are many different types of deeds commonly used in Arizona real estate transactions. Mortgages are used less frequently than deeds of trust as security or collateral. Mortgages require judicial foreclosure while deeds of trust use a power of sale to accomplish the same result.
A common error made by many people is to refer to a “quit claim” deed as a “quick claim” deed. In Arizona, as elsewhere, there is no such thing as a “quick claim” deed. A quit claim deed is used to convey whatever interest the grantor may have. Sometimes, a quit claim deed is used when another form of deed should be used.
A warranty deed is a deed where the person granting the deed agrees to defend the title from claims of others. There are two (2) main forms of warranty deed, each with its own sphere of protection.
Arizona Revised Statutes, Section 33-402 states that the following language is sufficient in a deed:
1. To quit claim: “For the consideration of ______________, I hereby quit claim to A.B. all my interest in the following real property (describing it).”
2. To convey: “For the consideration of ______________, I hereby convey to A.B. the following real property (describing it).”
3. To convey and warrant: “The same as the preceding form, adding “and I warrant the title against all persons whomsoever” (or other words of warranty).”
A general warranty deed contains certain covenants, whether or not they are spelled out, so long as the conveyance and warranty language is used. The following covenants and none other, on the part of the grantor for himself and his heirs, to the grantee and his heirs and assigns, are implied unless restrained by express terms contained in the conveyance:
1. That previous to the time of execution of the conveyance the grantor has not conveyed the same estate or any right, title or interest therein, to any person other than the grantee.
2. That the estate is at the time of execution of the conveyance free from encumbrances.
A special warranty deed, instead of warranting the title as against all persons, merely warrants the title against claims that arose during the period the grantor held title to the property. A special warranty deed guarantees that the grantor has done nothing during the time he held title to the property which has, or which might in the future, affect the grantee’s title.
A quit claim deed transfers whatever interest the grantor may have, without warranty of any kind. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has, if any.
A relatively recent creature of Arizona law is the beneficiary deed. This form of deed transfers no present interest to the beneficiary named in the deed. Instead, the beneficiary receives and interest upon the death of the grantor. The beneficiary deed allows a person to transfer a future interest in the property while maintaining control over the property. The beneficiary deed avoids the need for probate. A grantor may revoke a beneficiary deed at any time.
There are advantages and disadvantages to using a beneficiary deed. Problems can arise when the beneficiary is a minor or when there are multiple beneficiaries. Joint tenant situations also create potential problems involving the use of a beneficiary deed.
In Arizona, deeds of trust are creatures of statute. Deeds of trust are used in place of mortgages and are favored by lenders because no “foreclosure” is required, no lawsuit is usually required and the property can be transferred to the lender in the event of a default much faster and at less expense than if a mortgage was used.
The owner of the property, called the “trustor” transfers ownership to a “trustee” (usually a title company) who holds title for the benefit of the a “beneficiary” (lender). When the trustor pays the debt secured by the deed of trust the trustee reconveys the property to the trustor. If the trustor defaults, the trustee schedules a trustee’s sale and sells the property to the highest bidder. The trustee then issues a trustee’s deed to the successful bidder.