How To Use This Book

A. Understanding Basic Terminology

Before we go on, let's stop a minute and define a few important real estate terms. A much more complete glossary is in the back of the book.

Don't despair if it seems like a short course in Greek; we'll redefine the important terms when you run across them again.

Real Property

Real property (real estate) is land and things permanently attached to land -- everything from houses and trees down to built-in appliances. Thus, a mobile home that is installed on a foundation is usually considered real property. Anything that's not real property is "personal property." Personal property that has been permanently attached to a structure on the property (for example, chandeliers or built-in bookshelves) is considered a "fixture" and part of the real property. It automatically passes to the new owner under a deed, unless the parties to the transfer agree otherwise.

Ownership

"Ownership" of real property, as a legal concept, is more complicated than it may appear. Most people think of ownership as an absolute thing -- you either own property or you don't. The law, however, sees property ownership as a package of distinct "ownership interests." This package can be split in certain ways, and pieces of property ownership given to different people.

There are two common ways for ownership of property to be split. One is when ownership is shared at the same time. For instance, if you and your spouse, or you and your three sisters, own a house together, you each own part of the whole interest in the property. (Depending on how title to the property is held -- as a joint tenancy, tenancy in common, community property, etc. -- the co-owners have different legal rights and responsibilities. See Chapter 3.)

Other "interests" in property can also be shared at the same time. For example, a neighbor may own an easement -- a legal right to use part of your land subject to certain conditions (for example, the right to run a water pipe or path over a certain part of the land). As an easement owner, the neighbor is in essence a "co-owner" (although he would never be referred to as such in normal conversation) and you must take his rights into consideration before you transfer the property. Put differently, you can only transfer what you own -- and if a neighbor acquired part of your ownership rights in the form of a right-of-way across the land, there's nothing you can do about it now. When you transfer the land, the easement goes with it, and the new owner takes the property subject to the easement.

Someone with a lease on the property also has some of the rights of the owner -- the right to possess the property during the term of the lease, of course, is the important one. He can transfer those rights (if the lease permits it). Similarly, the owner can transfer her ownership rights, but can't end or interfere with the rights of the person with the lease. In other words, the property is transferred subject to the lease.

Ownership can also be shared over time. For instance, a deed may specify that one person owns property only for a certain period of time (most frequently, his lifetime). If someone has such a "life estate," somebody else, by necessity, has an ownership interest in the property that will take effect after the first person dies. This second person's ownership rights do not include the right to use the property while the first owner is alive. But the second owner may, for instance, require the first owner to maintain the property's value by keeping it in good shape and making property tax and mortgage payments. These arrangements are quite rare these days. They are leftovers from the English feudal system of land ownership, when real property was almost the only measure of wealth and power and it was common for ownership interests to be divided intricately among many heirs.

Title

The owner of a piece of property is said to have "title" to it. Title is proof of ownership. In that sense, title is just a shorthand way of referring to ownership. However, the two terms are not synonymous. It is possible to change the title -- the way in which property is owned -- without changing who owns it. For instance, if before you married, you and your current spouse took title to property as tenants in common, you might now want to change it so that title is held as community property. You would continue to own the property together, but the change in the way you hold title would produce a different set of consequences when you or your spouse died. We discuss these kinds of transfers in more detail in Chapter 3.

Title Search

To find out who owns property and how they hold the title to it, the first step is to look at the deed, which shows the current owners. Deeds, however, do not reveal certain kinds of problems with title to property. To confirm ownership requires a title search -- a search of all public records of the property. Usually done by a title insurance company, the search includes examining copies of all the deeds that have ever transferred it, easements granted over it, liens placed against it, and tax and court records.

Checking the public records is usually reliable because all ownership interests in land are supposed to be recorded with the county to be fully effective (the recording system is discussed in Chapter 6). All deeds passing the property from owner to owner should be on record.

Evidence of other interests in the land will most likely be in the form of a document granting an easement, giving the property as security for a loan, or announcing that someone has placed a lien on the property to insure payment of a debt or taxes.

Title searches are routine whenever property is transferred and a bank or savings and loan is involved. Before making a loan that is secured by the property, a lender wants to make sure that the buyer is getting good title to it. Title searches are not necessary in some intrafamily transfers or when owners just want to change the way they hold title.

Title Insurance

Title companies guarantee the results of their searches by issuing title insurance policies, usually in the amount of the value of the property. Title insurance protects an owner (or whoever loaned money to finance the purchase of the property) against losses that result from a defect in the title that exists when the policy is issued and is discovered later. For example, a typical title insurance policy would cover an owner's losses if any of the transfer documents are fraudulent or forged, or if there is a lien or easement on the property that the title company didn't find when it searched the records. If an owner puts in a claim under the policy, the insurance company can, like any other insurance company, defend the owner in a lawsuit or negotiate a settlement.

In many private, intrafamily transfers, where no institutional lender is financing the purchase and all the parties are confident that the title is clear, they decide not to buy title insurance. In many situations, however, title insurance is a wise investment. Title insurance, and how to get it if you decide you want it, are discussed below.

Deeds

Deeds are the documents that transfer ownership of real property. In California, the most common kinds are grant, quitclaim, and trust deeds. Their functions are quite different. Here is a very brief overview of each:

Grant deed: The most commonly used type of deed. It contains guarantees that title being passed hasn't already been transferred to someone else or been encumbered (see the next section), except as specified in the deed. The grantor is the person transferring the property; the grantee is the person receiving it.

Quitclaim deed: A deed that is used to give up one's claims to land. Unlike a grant deed, the quitclaim deed makes no promises about the title being transferred. The maker of a quitclaim deed simply transfers whatever interest in the land he may have at the time. Quitclaims are often used when someone has a theoretical claim to real property; the potential claimant gives up the claim, and the property's owner doesn't have to worry about the claim being made later. They can also be used instead of a grant deed; they are just as effective to transfer ownership of property.

Trust deed (deed of trust): A trust deed isn't used to transfer ownership of property. It comes into play when someone uses real property as security for a loan -- which is almost anytime someone buys real estate. It is used in conjunction with a promissory note (a written promise to pay back a loan). The buyer signs the note and a trust deed, which permits its holder (the trustee) to sell the property and pay off the loan if the buyer defaults.

Encumbrance

An encumbrance is any legal claim on property that affects an owner's ability to transfer title to the property. Common encumbrances are deeds of trust, mortgages, and past-due property tax liens (claims filed against the property when property taxes are delinquent). If your property is encumbered -- say, for example, there is a trust deed on the property because you borrowed money to buy it -- before you can transfer title you will either have to remove the encumbrance (by paying off the loan secured by the trust deed) or get the buyer to agree to take the property subject to the encumbrance. (In the case of a trust deed, you would most likely also have to get the approval of the lender for the new owner to take over the loan.)

Next: B. Encumbrances

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