Grantors and grantees represent two sides to a transaction. These terms are used in relation to trust creation. They are also used to describe the most important roles in a real estate transaction and the corresponding types of deeds that enable the transfer of real property. When it comes to grantors and grantees in real estate, it is the trustee that is administering the trust of the grantor that will benefit most from understanding the various types of deeds available to work with. See below for a general understanding of grantors and grantees in trust documents and grantors and grantees in real estate transactions.
Grantor and Grantee in Trust Documents
The terms grantor and grantee are used in trust documents. In this context, the grantor is the person for whom the trust is made, the person who is depositing trust assets into the trust account. The grantee is the person who receives the benefit of the trust agreement. In some situations, the grantor and grantee are the same person.
A trust holds money, investments, or other property for various reasons, one of which is to protect the property. Trusts are often useful to avoid probate and to provide clear instructions on how to handle property after the grantor’s death.
The trust grantor legally transfers control of assets to a trustee who manages the assets for the grantee. One of the most commonly held assets in a trust is real estate. For the trust to own the real estate, there must be a legal transfer of ownership from the grantor to the trust.
It is possible for the grantor to serve as the trustee if the trust is designed as such.
Role Of The Trustee
The trustee of a trust manages the trust property for the benefit of the beneficiary. The trustee is a fiduciary, so they must put the beneficiary’s interests above their own while following the grantor’s instructions.
The trustee’s responsibilities include:
- Administer the trust in accordance with its terms
- Create proper records regarding administration of the trust
- Safeguard trust assets
- Make required or discretionary distributions to beneficiaries
- Keep beneficiaries informed about the status of the trust
- Prudently manage trust assets
- Act as a prudent investor when making investments in the name of the trust
- Periodically review trust investments for performance
- Use and distribute trust assets according to the terms of the trust
- Manage real property included in the trust
- Prepare necessary tax filings
- Manage third-party professionals
One of the most involved tasks a Trustee must deal with is the transfer and sale of property. As such, it is important for a trustee to understand the roles of grantors and grantees in real estate transactions as well as the various types of deeds that can come into play.
Grantor Definition In Real Estate Deeds
One of the most important assets a trust may own is real property. The property deed sets out the obligations of the grantor and grantee. In real estate law, the term “grantor” is also used and typically refers to the current owner of the property. In a real estate transaction, they are responsible for making a property transfer, such as through a sale or gift. When selling or gifting the property, the grantor sells property rights to the grantee, a term that’s also used in real estate law. The grantor generally signs the property deed during the transaction. The grantor can sign the deed to a trust.
The grantor also has certain legal rights, such as the right to have a lien placed on the piece of property or take out a mortgage on it from a lender.
Grantee Definition In A Real Estate Transaction
The grantee is the person who is receiving property rights because of the transaction. For example, the grantee may be any of the following:
- Buyer
- Lienholder
- New owner
- Recipient
When the grantee is the buyer, the grantee receives ownership rights of the property after the closing process.
The grantee does not have to be a person. For example, it can be a trust.
Parties Involved in a Real Estate Transaction
It may be helpful to understand the role of various parties who might be involved in a real estate transaction if you are purchasing property with the trust. During the buying process, there may be several parties involved, including:
- Homeowner – The owner puts their home for sale, usually listing it on the MLS.
- Homebuyers – The homebuyer may be one or more natural persons, partnerships, corporations, or other entities.
- Real estate agent – A real estate agent may help the homebuyers find appropriate listings that match their needs. Another real estate agent typically represents the seller in these transactions.
- Mortgage lender – The mortgage lender may want to ensure that the property appraises for a certain value and does not have potential issues because they provide the money the borrower needs to purchase the property.
- Title insurance company – A title insurance company conducts a title search to see if there are any encumbrances or other clouds on the property title.
- Real estate law attorney – A real estate attorney may represent the buyer and may create or review various documents with them before or during closing.
Grantor and grantees may also be present in leased transactions. The lessor is generally the person who owns the property or has the official capacity to lease the space. The lessee is the person who will make payments to use the space.
Types of Deeds
Real estate is often one of the most important assets in a trust. The grantor may have included specific instructions about how they want their home to be managed, such as allowing their surviving spouse to live out their life in the property and then passing their interest to another beneficiary. Or, there may be specific directions about how to manage rental properties.
If you are named as the trustee of a trust, it is important that you understand the various types of deeds that may be used to transfer real property to the trust. All deeds are not the same and do not provide the same guarantees or legal rights, so it’s essential to know the differences so you can carry out your fiduciary obligations related to the trust.
There are several different types of deeds, including:
Quitclaim Deed
A quitclaim deed (sometimes called a quit claim deed) is the simplest type of deed. It basically states that the property owner transfers all their property rights to the grantee, whatever those rights might be. This type of deed does not guarantee the grantor’s interest in the property is free and clear. Therefore, there is no protection that the property transfer is legal or valid. Quitclaim deeds are more common with transfers between family members.
General Warranty Deed
A general warranty deed is the most common type of deed that transfers real estate property from one person to another. A general warranty deed guarantees that there are not any undisclosed title issues, encumbrances, or outstanding liens on the property being sold. If a problem with the title arises, the grantor is liable and may be responsible for the costs associated with correcting the issues. Here’s a short video explaining the difference between a general warranty deed and a quitclaim deed.
Special Warranty Deed
A special warranty deed is sometimes referred to as a grant deed or limited warranty deed. A special warranty deed provides less protection than a general warranty deed when transferring ownership of the property.
The grantor guarantees to the grantee that the home was free of legal encumbrances while they held the property. This means the following:
- The grantor paid off any mortgage on the property
- The grantor has the legal right to transfer ownership of the property
- No creditors have filed a lien against the property
- The grantor has not sold the property to anyone else
Note that the guarantees only apply to the grantor’s ownership. Therefore, if a previous owner clouded the title or acted in a way that exposed the property to legal claims, this is not covered by the special warranty deed.
Bargain and Sale Deed
A bargain and sale deed states that a seller holds legal title to the property and has the legal right to convey it to the buyer. It does not guarantee that the title of the property is clear. Sometimes, bargain and sale deeds are used in foreclosure auctions or tax sales. It is also used sometimes when transferring property to a family member or trust. That said, in contrast to a quitclaim deed, which provides no warranties at all, a bargain and sale deed guarantees the seller owns the property at minimum.
Collectively, these four types of deeds are sometimes called primary deeds. Here is a review of their special characteristics:
| Type of Deed | Characteristics |
| General Warranty Deed | Guarantees the following:A property has no liens against itSeller holds full ownership of the propertyThe seller has the legal right to sell the propertyThe seller will pay costs associated with defending the title |
| Special Warranty Deed | Guarantees the seller, during their ownership of the property, has not sold the property, does not have any current encumbrances against it, and has the legal right to sell the property. |
| Bargain and Sale Deed | The title might not be clear, but the seller has the legal right to sell it. |
| Quitclaim Deed | Transfers whatever interest the grantor has in the property. The seller may have no legal right to convey the property. |
Secondary deeds may include the following:
Beneficiary Deed
A beneficiary deed lets a property owner name a person who will inherit the property once they pass away, thereby avoiding the probate process.
Disclaimer Deeds
A disclaimer deed is used in community property states where property that is acquired during the marriage is usually considered community property. You can own the property separately from your spouse if they sign a disclaimer deed, waiving their interest in the property.
Judicial Deed or Special Purpose Deed
The terms judicial deed or special purpose deed are sometimes used interchangeably. They can be used in (a) court proceedings, e.g pursuant to a court order, or (b) to let those acting in an official capacity to make property transfers without being held personally responsible for them. They do not provide warranties that protect buyers. Some types of judicial deeds and special purpose deeds may include:
- A guardian’s deed that allows a guardian to sell real estate on behalf of a ward, for example a mentally incompetent individual or a minor child
- An executor’s deed that allows an executor to transfer real property from the estate of an individual that had a valid will in place prior to dying
- An administrator’s deed that allows an administrator to transfer property when there is no will
- A sheriff’s deed conveys property to the highest bidder at a sheriff’s auction, for examples properties purchased under a forclosure
- A tax deed is used to transfer the property title to a new owner and used in tax foreclosure sales
- Master deed – Condo developers sometimes use a master deed to divide the property into individual units, plus common areas. Master deeds are filed with the local registry of deeds before selling individual units.
- Deed in trust – A grantee (buyer) may have a trustee hold title to property for the benefit of a lender through a deed in trust, if the buyer has borrowed funds from the lender to purchase the property, until the debt is fully paid off to the lender. This concept is very similar to a mortgage.
Deed in Lieu of Foreclosure
A deed in lieu of foreclosure is a type of special purpose deed. A deed in lieu of foreclosure is a different type of deed that affects the lender more than a grantee buyer. By signing a deed in lieu of foreclosure, a property owner hand over ownership of the property to the mortgage lender to avoid the foreclosure process. This helps the parties avoid the cost and consequences of a prolonged foreclosure process.
Interspousal Transfer Deed
An interspousal transfer deed is a deed that transfers ownership of a property to a spouse. This may be used in cases such as when a person is moving to a nursing home with the help of Medicaid but their spouse will continue to live in the home.
Takeaway
Understanding the roles of the grantor and grantee is essential in estate planning. The trustee has a duty to these parties to act in a reasonable and prudent manner, including carefully managing their investment properties.