Apr 2012

Providing Title Insurance after a “no consideration” deed

By admin

In this post we will discuss a type of quit claim deed the “no consideration” deed. There is cause for concern whenever such a deed pops up in the chain and many a client just does not understand what the issues is. When we encounter a deed in the chain of title to a property for which the grantee did not pay for his interest, our fear is that there may be fraud or forgery involved in the transfer of title. Remember on our side of the transaction it is our job to be skeptical.  Often, the deed may appear to transfer title from one family member to another, husband and wife to husband alone or father to son. And other times there may be no obvious relationship between the grantor and grantee, for example a transfer from an LLC to an individual or a transfer pursuant to the termination of a Corporation.

All title insurance companies have strict guidelines when the subject transaction involves a “no consideration deed” in the back chain of title. Say for example the deed to the grantor in a transaction appears to have been an arms length sale between unrelated parties, consideration was paid and the transaction appears to have been insured by another title insurance company or its title insurance agent. Many title insurance underwriters would request the grantor in the “no consideration deed” to show up at the currently scheduled settlement to either execute a confirmatory deed, join in the execution of the deed to the currently proposed insured or, supply present valid identification and confirm their willful and knowing execution of the no consideration deed by an affidavit. If for whatever reason so long as it is credible and believable the grantor is unable to show up to do such, we as the title company would probably look to the families attorney. The attorney may be able to provide details regarding the execution of the deed. Perhaps there was a family estate plan which called for the execution of the deed, or maybe there is an attorney who represented an ex spouse/grantee  in a separation/divorce matter. The goal is for the title company to become comfortable insuring the transaction, otherwise we maybe forced to list the “no consideration deed” as an exception to the proposed owners title insurance policy.

Viewing the matter from a title insurance company standpoint, no one gives away real estate without good reason. So, anytime our title examiner finds that the current owner has acquired his title to a property to be insured by way of a deed for which there was no consideration, after examination we must ask, WHY? That question then appears in the title report in the form of an exception which usually reads something like this:

The deed in _________________, recorded __/__/__, appears to have been given for no consideration. The circumstances regarding the conveyance must be disclosed to the company, and additional exceptions may be raised. If the proofs are not satisfactory to the Company, policy will except any loss or damage sustained by the insured which would not have been suffered had the grantee been a bona fide purchaser for value.

It’s important to realize that our underwriters are strict in these fact patterns for your benefit and it is imperative that we carefully scrutinize each situation on its own merits. If you have any questions at all as it relates to a similar situation feel free to touch base with us directly and we can determine whether your transaction is OK to insure. Additionally, as always it is important to consult with counsel when changing the vesting of a particular parcel.

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