Category Archives: Commercial Real Estate

We recently were consulted by a couple who had purchased three residential lots with lake frontage.  They intended to build a home that straddles all three lots, so clear title to all three is critical to their plans.

Unfortunately, when they went to the bank for a loan on the properties to build their dream home, they learned that title to two of the lots is impaired.

Before buying the two lots, they had the title checked, and they thought the attorney wrote to them with a title opinion on both.  As they checked their paperwork, they did have one title opinion letter, but it recited neither of the lots in question, but rather a lot they had sold.  

Thus, they were ready to start construction of their home, but were “stuck” either with bad title, or waiting for the title to be cleared.

How could this situation have been avoided?

• First, they could have purchased an owners’ policy of title insurance;
• Second they could have read the policy — to make sure it covered the right property and that it did not have unacceptable “exceptions” to coverage (that topic is addressed in this blog entry); and
• Third, they could have dealt with experienced real estate attorneys from the outset.

This firm worked to assure that the attorney handling the closing will in fact “stand behind” his deficient legal work, but with proper legal work or title insurance coverage in place, they could be proceeding to build their dream house music sooner.

There are different types of deeds used in Ohio real estate transactions, providing buyers with differing levels of assurance of title quality from the seller and differing levels of liability, and potentially continuing liability, for the seller.

In Ohio, a seller can use a deed with specific language of conveyance either on a form pre-printed by a publishing house, or one crafted by his attorney. We refer to this as a “long form” of deed. In the case of a long-form of deed, because the language can differ from deed to deed, it is important to read the language of the deed, not just the title, to ascertain the warranties that accompany the deed. Also available in Ohio are statory “short forms” of deed (Ohio Revised Code Chapter 5302), which, if they use certain “magic words” as defined by statute, have the specific meanings ascribed to them in the statute (thus allowing for very short deeds and avoiding costly court battles about the meaning of deed language).

In Kentucky and Indiana, only long forms of deeds are available, meaning that reading the specific language of each deed is important.

Quit Claim Deed. A quit claim deed is just like it sounds – a grantor surrenders his claim to title to the grantee, whatever that quality of title may be.  Indeed, a seller can convey by quit claim deed even if he does not have title to the subject property.  Because the buyer is getting no assurance of title with such a deed, a quit claim deed is unusual in an arms length transaction. Quit claim deeds are frequently used to clear up title problems, where someone with a stray land interest can extinguish it by “quit claiming” to the otherwise rightful owner.

We have seen quit claim deeds used in commercial transactions. When used hand-in hand with an owner’s policy of title insurance, it can be acceptable for a buyer to have assurance of the quality of title. Essentially the title insurance underwriter takes the risk of title problems instead of the seller. There is a statutory form of quit claim deed in O.R.C. Section 5302.11.

Limited Warranty Deed (sometimes called Special Warranty Deed). A limited warranty deed, also sometimes known as a special warranty deed, is one in which the grantor warrants title to the grantee against encumbrances made by the grantor for those grantees claiming through the chain of title created by the grantor.

Thus, the grantor is not warrantying that he has good title, just that he has not impaired title during his ownership.  Again, if accepting such title, a buyer should have title insurance.

There is a statutory form in Ohio that provides that as long as the magic words “grants…with limited warranty covenants” are used, the scope of the deed is as set forth in O.R.C. Section 5202.07. Limited warranty covenants do survive through the chain of title, so a grantor could be responsible decades after a conveyance, to a subsequent grantee in the chain of title, for title defects.

General Warranty Deed. A general warranty deed is a broad promise from the grantor to the grantee that the grantor was the owner of the property, that the property is free from all encumbrances (except those excepted in the deed), that the grantor has the authority to convey the property, and that the grantor will defend against all claims from all persons. This is the most common form of deed for transactions in Ohio, Kentucky and Indiana, residential and commercial.

Sellers should be aware of the broad and perpetual liability they assume under a general warranty deed – to correct title problems and to pay an attorney to argue those issues for the buyer – with such a deed.  Sellers who would resist signing an indemnity provision in a contract or lease, frequently sign warranty deeds without any thought to their resulting continuing liability.

Similar to the Limited Warranty Deed, there is a statutory form for a general warranty deed in Ohio that provides that as long as the magic words “grants…with general warranty covenants” are used, the scope of the deed is as set forth in O.R.C. Section 5202.05.  Also, general warranty covenants do survive through the chain of title, so a grantor could be responsible decades after a conveyance, to a subsequent grantee in the chain of title, for title defects.

Fiduciary Deed. These deeds are most frequently used when the seller is acting in a fiduciary capacity, such as the executor or administrator of an estate or the trustee of a trust.   In the long form of a deed, the warranty covenants must be fleshed out (i.e., it is language specific to that deed), but the Ohio statutory short forms (O.R.C. Section 5302.09 and 5302.10) provide that fiduciary covenants cover only the authority of the fiduciary to convey (i.e., that he is duly appointed, qualified and acting within the scope of his appointed authority and authorized to make the sale in such capacity).  A statutory short form of fiduciary deed is otherwise a quit claim deed, and as should be used only in conjunction with a title insurance policy issued to the grantee.

For both buyers and sellers, careful consideration should be given to the type of deed called for in the contract and used at the closing, as it will affect their rights and responsibilities when a title problem arises.  This also impacts the circumstances under which it is more compelling for a buyer to obtain an owner’s policy of title insurance at the closing.