What is an Unrecorded Deed?
An unrecorded deed refers to a situation where the title to a property, typically real estate, is not registered with the relevant public records department.
Key Highlights
- Definition: An unrecorded deed is when the title to property is not registered with the public records department.
- Challenges: Unrecorded deeds can create proof of ownership issues and tax complications for sellers (grantors) and buyers (grantees).
- Transaction Issues: Difficulty in selling, insuring, or obtaining loans for a property can arise if clear title cannot be established by financial institutions and insurance firms.
- Risk: There is a potential for the seller to fraudulently sell the property to another buyer if the deed is unrecorded.
The Importance of Recording a Deed
An unrecorded deed is a deed for real property that neither the buyer nor the seller has registered with a suitable government agency. This can lead to serious problems, such as the inability to prove ownership and ensuring clear financial responsibility for property taxes.
When a deed transfers specific rights of ownership, each party benefits from having this deed on public record. Not only does it provide evidence of the transfer, but recording deeds is also essential for legal and financial transparency, particularly in transactions involving mortgages, home equity loans, or any circumstance where property serves as collateral.
Consequences of Unrecorded Deeds
- **Proof of Ownership: **Without recording the deed, public records show the property’s owner as the seller, which can lead to complications.
- Selling the Property: A clear title is essential for selling a property. Unrecorded deeds create significant obstacles in this process.
- Obtaining Loans: Financial institutions often find it challenging to issue loans against property with an unrecorded deed.
- Double Sales Fraud: Sellers could potentially sell the same property to another unsuspecting buyer.
Protecting Your Interests as a Buyer
Most mortgage companies mandate a title search and require title insurance for any property being purchased. This ensures a clear transfer of ownership and reveals issues such as outstanding liens or back taxes that might complicate the sale.
Self-financed Buyers: Protect Yourself
Self-financed purchasers should consider conducting a title search and investing in a title insurance policy. Title insurance protects the buyer against any losses from title defects not discovered during the title search. Both lenders’ and owners’ policies are available; lenders often require their own but purchasers should also secure one for their interests.
Example Scenario
Consider a homeowner who bought a home with an unrecorded deed and an existing undisclosed second mortgage. If the seller defaults on this mortgage, the lender filing a lien would recognize the previous owner as the titleholder. Without the deed being recorded, the new homeowner risks losing the property or dealing with extensive legal complications.
Related Terms: Deed, Title, Mortgage, Collateral, Title insurance, Title search.
