In the world of real estate, there are almost as many types of transactions, agreements, and contracts as there are properties to sell and people to buy them. Fortunately for the first-time homebuyer or budding real estate investor, you don’t need to know every term and equation when you’re just starting. However, a firm grasp of the fundamentals can be a boon at any level. Today, we’re exploring one of these fundamentals: the grantor vs. grantee dynamic.
Understanding Grantors and Grantees
Understanding the grantor vs. grantee relationship is essential to any real estate investor’s knowledge. However, before we get into the finer points of how these two roles work, let’s take a quick look at what each one is at its most basic level.
What is a Grantor?
A grantor is a party in a transaction that transfers ownership or property rights of an asset to a grantee. That can mean granting full ownership through selling real property or other temporary or conditional rights to the asset. In real estate sales, the grantor would be the party selling the property. In other cases, a grantor could be a landlord, owner, or lessor.
What is a Grantee?
In contrast, a grantee is a party who gains ownership or rights to an asset in a transaction. This party receives full or partial ownership rights to the property or asset. Often, a grantee will be the buyer in a real estate transaction, though a tenant, lessee, or mortgagee would also be a grantee.
Grantor vs. Grantee Examples
Let’s briefly illustrate the grantor vs. grantee covenant with a few examples of how the conveyance of property rights can work between them.
In the simplest case, a cash real estate transaction, the seller acts as a grantor. They grant full property ownership in exchange for an agreed-upon purchase price. As a result, the buyer, or grantee, gains free and clear ownership rights to the asset, becoming the new owner.
A lease arrangement is another form of grantor/grantee relationship. In this case, the grantor is usually the property owner, such as a landlord. They grant temporary possession of the property to the lessee, or grantee. In exchange, the grantee agrees to make rent payments and uphold any other terms of the lease agreement for the duration of their tenancy.
A mortgage is a grantor/grantee arrangement similar to the examples above. The mortgagor, i.e., the mortgage lender or current owner of the mortgage, acts as the grantor here. A grantor in this scenario is conveying property rights to the mortgagee, or grantee, in exchange for an ownership interest until the grantee repays their debt.
Documents Defining a Grantor and Grantee
Several factors and legal documents determine the exact relationship between a grantor and grantee. The precise legal description of each relationship will also vary by state or regional law where the transaction occurs.
Usually, a deed will be the primary document defining this arrangement and protecting the parties therein. Let’s take a quick look at some common types of deeds that can outline this grantor/grantee relationship.
A grant deed is the most common type used in a real estate sale. It is a legal document in which the grantor asserts that they have disclosed all current liens and obligations on the property to the best of their knowledge.
This type of deed protects the grantee from any claims against the property title from the grantor’s time as the owner. On the other hand, it does not cover the grantee from any claims from before the grantor’s period of ownership.
A grant deed offers a measure of protection to both parties. It protects the grantee from unmet responsibilities of the grantor while protecting the grantor against claims and obligations that previous grantors did not uphold or disclose.
Special Warranty Deed
A special warranty deed is very much like a grant deed, though the language and specifics may vary from one state to another. In it, the grantor asserts that there are no current liens or encumbrances against the property from their time as the owner.
Where a grant deed typically discloses all known unpaid encumbrances, a special warranty deed generally asserts that there are none of which the current owner is aware.
Similar to a grant deed, a special warranty does not protect the grantee from claims against the property before the current grantor’s period of ownership.
General Warranty Deed
A general warranty offers the most protection to a grantee. It guarantees not only that the grantor is transferring a clear title but that they will legally defend that status on behalf of the grantee should any claims to the contrary arise.
This type of deed transfers full asset ownership to the buyer. It also provides warranties ensuring that there are no other liens or ownership obligations on the asset and that the seller has the right to transfer ownership.
Unlike a grant or special warranty deed, the grantor on a general warranty deed asserts that they will support the grantee’s claim to the property over any other claim, including any from before the grantor’s period of ownership. Therefore, if an older encumbrance is unknown to the current seller, they may still be liable under a general warranty deed.
In strong contrast to a general warranty deed, a quitclaim deed (also sometimes stylized as a quit claim deed) offers the least protection to the grantee.
In a quitclaim, the grantor only agrees to convey whatever ownership rights they hold over the property to the grantee. It does not guarantee that these rights are the grantor’s to give and does not necessarily assert anything about liens or other encumbrances against it.
It is rare to use a quitclaim deed in most typical real estate transactions, though it does serve a purpose in certain specific transactions. Most commonly, a quitclaim deed may facilitate the transfer of a piece of real estate to a co-owner or between family members. Similarly, someone may use such a deed to transfer a property into a trust for estate planning purposes.
Quitclaim deeds can also be helpful after divorce proceedings. For example, the spouse who is departing a shared residence may use one to relinquish their property rights to the spouse who is taking over ownership of the property.
Deed in Lieu of Foreclosure
In cases of imminent foreclosure, homeowners may use a deed in lieu of foreclosure to voluntarily transfer their ownership rights to the mortgage holder.
The primary use of this type of deed is to give property owners the chance to throw in the towel, so to speak, and relinquish their claim to the property before ending up with the stain of foreclosure and eviction on their credit history.
One way to think of it is like an employer giving an employee the opportunity to resign before they would be fired or laid off. It gives the former the possibility for a more amicable and less expensive process, and it gives the former a chance to preserve their reputation and prospects.
Foreclosure is a painful process and a massive detriment to one’s credit history. It can also be a long, expensive, and exhausting ordeal for all parties. A deed in lieu of foreclosure circumvents much of this difficulty.
Special Purpose Deed
As the name implies, a special purpose deed serves only a few niche cases. A special purpose deed often applies where the grantor is a public official or other interest acting as an “outside party” to the transaction.
A county sheriff auctioning off a property or the executor of a will could be two examples. In cases like these, the grantor may not be the owner or seller of a property in the traditional sense, but more of a third party facilitating a change in ownership. As such, a special purpose deed offers additional protection to these individuals.
Generally, the grantee on a special purpose deed does not receive much protection from outside claims against their title or property rights. However, they may have the possibility to sue a larger body or government entity in the case of such claims.
Interspousal Transfer Deed
Another self-descriptive document, an interspousal transfer deed, defines a tax-free property transfer from one spouse to another. In a transaction of this type, the spouse acting as grantee becomes the property owner.
There are several possible reasons for this type of transaction. One of the more common is transferring ownership to a spouse with higher credit. This marital benefit creates the opportunity to refinance a mortgage at a more favorable rate or with a new creditor.
Summing It up: Grantors vs. Grantees
It doesn’t take a real estate lawyer to understand the basics of the dynamic between a grantor and a grantee. Knowing these fundamentals can help you know your rights, liabilities, and responsibilities concerning your tenants, sellers, trustees, heirs, landlords, and more.