This article sets forth the intent necessary for a deed to be considered an enforceable conveyance which will withstand claims it is void or voidable.
Need for delivery, not recording
A deed conveying real estate takes effect and transfers ownership to the named grantee when the deed is delivered. The mere signing of a deed by the owner as the grantor is not enough to divest the owner of his title to an interest in the real estate. Delivery of the signed deed is required.
Delivery refers to two separate acts:
the grantor’s intent to convey title, not just the physical handing over of the deed to the grantee; and
the grantee’s acceptance of the grant deed as an immediate conveyance.
While the grantor may intend to convey title when he hands over the deed, if the grantee does not accept the deed, the deed will not be considered delivered and a conveyance does not occur.
The grant deed need not be recorded to deliver title to a new owner or to revest title in two or more individuals. Recording perfects the ownership against unknown off-record interests and later buyers or encumbrancers.
For example, a mother, son and daughter hold title to real estate as joint tenants.
The mother and daughter later sign a grant deed to their undivided two-thirds interest in the property and deliver it to themselves as joint tenants. The deed is not recorded.
The mother passes away, and the son seeks ownership of a one-half interest in the property. The son claims the unrecorded grant deed does not sever the joint tenancy between the mother, daughter and himself.
The daughter claims the son only holds a one-third interest in the property since joint tenants who execute deeds to one another do not have to record the deed to sever the joint tenancy.
Is the son entitled to a one-half interest in the property as one of the surviving joint tenants?
No! The grant deed between the mother and the daughter who were both joint tenants only needed to be delivered, not recorded, to sever the joint tenancy. Thus, the son owns no more than his original one-third interest in the property. [Re v. Re (1995) 39 CA4th 91]
Constructive delivery
The delivery of a deed is inferred when the grantee receives or has possession of the deed. The deed may also be considered delivered without the grantee having or holding actual possession of the deed.
Even if the grantee does not have possession of the deed, the deed is not necessarily void. When a grantee is not physically handed the deed, a constructive delivery of the deed may have taken place.
Constructive delivery of a deed to the grantee is deemed to have occurred if:
by an agreement between the grantor and the grantee when the grantor signs the deed, the deed is understood by both to be delivered; or
the deed is delivered to a third party for the benefit of the grantee, and the grantee or an agent of the grantee demonstrates the grantee’s acceptance of the deed. [Calif. Civil Code §1059]
Grantor’s intent to convey
Without the owner’s intent to convey title as a grantor, a deed will not be considered delivered, even if the grantee is handed the grant deed and accepts physical possession of the deed as a delivery.
Consider an owner who hands a grantee a gift deed. The owner orally states the deed is not to be effective until he dies, and if the grantee dies first, the deed must be returned to the owner. The owner of the real estate does not intend the deed to immediately convey ownership of the real estate to the grantee.
The owner dies, and the grantee records the deed. Heirs of the owner assert they own the real estate, claiming the deed is invalid since the owner did not intend to convey ownership when the deed was handed to the grantee and thus the deed cannot be considered delivered.
The grantee believes the deed is a valid conveyance of the real estate, claiming delivery took place when the owner personally handed him the deed and he accepted it.
However, to be a valid delivery, both the owner and the grantee must intend for title to the real estate to be conveyed concurrent with the handing of the deed to the grantee. The owner of the real estate must intend for the instrument that conveys the real estate to operate as a deed which immediately divests the owner of title.
Since the owner intended the deed to become operative only on his death, as evidenced by the his actions and statements when the deed was handed to the grantee, the deed is also considered an improper probate avoidance device, and is void, conveying nothing.
A deed cannot act as a will or revocable inter vivos (living) trust agreement. A will and an inter vivos trust agreement are testamentary documents which take effect on the owner’s death. Upon entering into a will or trust agreement, the owner does not give up control or ownership until death.
Conversely, a deed is a document intended to pass fee simple (or other estate) immediately on delivery. If the grantor does not intend to pass fee simple (or other estate) on handing the deed to the grantee, no delivery takes place and the deed is void. [In re Estate of Pieper (1964) 224 CA2d 670]
Now consider a property owner who conveys real estate to a grantee by grant deed. The grant deed states the owner reserves a life estate for himself. The grant deed is delivered to the grantee, who takes possession of the grant deed but not the real estate.
The grantee under the deed reserving a life estate for the grantor is not entitled to possession of the property until the grantor dies. However, the deed is valid and title to the property has been conveyed to the grantee in spite of the deed’s reservation of a life estate since the owner intended to convey title. [White v. Hendley (1921) 185 C 614]
Grant deed as mortgage-in-fact
Usually a grant deed is used with the intent to pass full legal title to the described property when it is handed to the grantee or recorded by the grantor.
However, when a grant deed is intended to convey title to a lender as security for a loan, the grant deed does not transfer the right of ownership. The grant deed given as security – collateral – is a mortgage-in-fact which imposes a lien on the property in favor of the lender – as does a trust deed.
For example, an owner needs a loan but has poor credit. A private lender agrees to lend the owner the needed funds. The private lender receives a grant deed to the property as security in the event of default on the loan. The real estate is to be reconveyed to the owner when the loan is fully repaid.
The owner retains possession of the property and remains responsible for the payment of taxes, a trust deed lien of record, and maintenance of the property. Usually, the grant deed to the lender is coupled with a lease and option to repurchase the property on an installment program (rent) with a final/balloon payment (on exercise of the option).
Before the loan is repaid, the owner seeks to sell the property.
The owner’s broker’s investigation of the title on record shows the property is vested in the name of the private lender. The broker questions whether his client is the true owner and can convey title if the property sells.
Here, the owner is the legal owner of the property and the lender simply holds a lien on title. The owner and the lender entered into a loan arrangement in which the grant deed was intended to be used as a security device until the loan is repaid, not to convey ownership of the real estate. [Orlando v. Berns (1957) 154 CA2d 753]
Brokers who arrange loans should use a trust deed as the device which attaches the debt as a lien on real estate. Using a grant deed as a security device is improper. A grant deed is generally equated to the grantor’s intent to convey all rights and title in the property to the named grantee.
A trust deed does not convey any ownership rights in the property to the lender. Rather, a trust deed imposes a lien on the property in favor of the lender to secure the owner’s performance of an obligation owed the lender. On executing a trust deed, the borrower retains all ownership rights to the secured property.
Conditional delivery
A deed cannot be delivered conditionally to the grantee.
A deed handed to the grantee or received by constructive delivery is considered an absolute conveyance. Any conditions imposed by the grantor which are not stated in the deed are unenforceable. Once a deed is delivered, it operates free from conditions not written in the deed. [CC §1056]
The conditional delivery rule only applies to deeds handed to the grantee, and does not apply when the deed is conditionally delivered to a third party, such as an escrow agent, broker or attorney. A deed delivered to a third party with instructions to hand the deed to the grantee on the occurrence or performance of a condition is valid. [CC §1057]
For example, a seller opens escrow and hands escrow his grant deed with written instructions authorizing escrow to deliver the deed when the buyer has fully performed and escrow is in a position to close.
Escrow later unconditionally delivers the deed to the buyer on the close of escrow. Escrow causes the deed to be recorded with the county recorder, who, in turn, mails the deed to the grantee under return-of-document instructions set forth on the deed.
Once placed in escrow, the grant deed can only be returned to the grantor if the grantee fails to perform as agreed, or by mutual instructions to escrow. Escrow will only release documents on written instructions from both parties.
Deed erroneously released
Now consider a seller whose broker locates a buyer who agrees to purchase the seller’s real estate. Escrow is opened. The seller signs and delivers instructions to escrow together with his grant deed. Escrow is authorized to use the grant deed to transfer ownership of the property to the buyer at the close of escrow.
The instructions state the deed is to be recorded and forwarded to the buyer when the buyer performs as agreed. The instructions further state the deed is to be returned to the seller if the buyer fails to perform by the date specified in the instructions.
The buyer does not perform as agreed. However, escrow mistakenly records the grant deed. The deed is mailed to the buyer by the recorder.
Did the buyer receive title to the real estate?
No! Escrow did not follow the seller’s instructions regarding recording and delivery of the deed on closing. The escrow’s unauthorized recording and the buyer’s possession of the deed is improper since delivery was not intended by either party. Thus, title was not conveyed and the deed is void. No interest was ever conveyed. [Hildebrand v. Beck (1925) 196 C 141]
Irrevocable escrow creates life estate
Consider an owner who hands a deed to his broker or attorney under written instructions to hold the deed until the his death. On death, the deed is to be delivered to the grantee. Under the instructions, the owner does not retain the right to withdraw or revoke the deed.
Has the owner delivered an enforceable deed to the third party?
Yes! The owner’s act of depositing the deed with a third party while relinquishing further control over the deed constitutes delivery of the deed and concurrently transfers title to the individual named as grantee. The third party becomes the agent of the grantee. The owner’s interest in the real estate is reduced to a life estate on delivery since the owner intends to retain possession and use of the property until death. [Husheon v. Kelley (1912) 162 C 656]
Further, once the owner deposits his deed with a third party and relinquishes all control over the deed, the owner’s later destruction of the grant deed, such as ripping it up, or the redelivery of the grant deed back to the owner, does not reconvey title. [CC §1058]
Also, an owner’s instructions to an escrow to record the deed when escrow can close creates a presumption of delivery, even if the owner dies before escrow closes. It is presumed the owner intended to presently convey title to the property, even if the owner dies before the close of escrow. [Osterberg v. Osterberg (1945) 68 CA2d 254]
Acceptance by the grantee
A grantee is presumed to have accepted the deed if the grant is beneficial to the grantee.
For example, an owner of real estate deposits in an escrow or with a broker a deed conveying real estate to the named grantee. The owner’s written instructions accompanying the deed state the deed is to be further delivered to the grantee on the owner’s death.
The instructions contain no provisions for the owner’s withdrawal of the deed from escrow. Thus, the owner retains no power to revoke the deed.
However, the grantee is not aware of the grant conveying title to the real estate.
On the owner’s death, the third party delivers the deed to the grantee.
Is the deed considered valid even though the grantee, being unaware of the deed, did not formally accept the deed?
Yes! The delivery of the deed to the third party with instructions to deliver the deed to the grantee on the owner’s (grantor’s) death is considered constructive acceptance by the grantee – even though the deed’s existence was then unknown to the grantee. The conveyance of the property was for the grantee’s benefit. A deed is considered accepted by the grantee when the deed is conditionally delivered to a third party. [Windiate v. Moore (1962) 201 CA2d 509]
Also, a deed is presumed to be accepted and the conveyance complete if the deed is:
physically handed to the grantee [California Trust Co. v. Hughes (1952) 111 CA2d 717];
recorded by the grantee [Drummond v. Drummond (1940) 39 CA2d 418]; or
in the grantee’s possession. [California Trust Co., supra]
Conditional acceptance by grantee
The conditional acceptance of a deed by the grantee does not constitute delivery. A deed is not effective until the grantee or his agent unconditionally accepts the deed. [Green v. Skinner (1921) 185 C 435]
For example, a secured lender initiates foreclosure proceedings on an owner’s property. The owner does not want a foreclosure as it would adversely affect his credit. Thus, the owner offers to deed the property to the lender in exchange for cancellation (satisfaction) of the debt secured by the property, called a deed-in-lieu of foreclosure.
However, the lender states the deed will not be accepted until:
the property is free of any encumbrances; and
the title is insured under a policy by an insurance company.
The owner hands the lender the deed-in-lieu. However, a title search discloses a junior trust deed lien exists on the property. The lender proceeds with the foreclosure and does not record or rely on the deed-in-lieu since the condition of title is unacceptable to the lender.
The junior lienholder discovers the existence of the unrecorded deed-in-lieu and claims the lender cannot foreclose since the lender accepted the deed-in-lieu subject to the junior trust deed (which would then become a first trust deed).
However, the lender agreed to accept the deed only on confirmation of the status of title. The grantee’s receipt of a deed, with acceptance of the deed conditioned on confirmation of the title condition, is not a binding conveyance of real estate.
A deed is effective when handed to the grantee only if the grantee unconditionally accepts the deed. The lender did not receive the deed with the intention of accepting delivery of the deed as an immediate conveyance of title. [Brereton v. Burton (1938) 27 CA2d 464]
Now consider a borrower who, aware of the lender’s conditions for accepting a deed-in-lieu, records the deed with instructions to the recorder to mail the deed to the lender. The borrower’s intent is to force acceptance on the lender since the lender’s conditions regarding junior liens cannot be met.
If the lender is unwilling to accept the deed when received from the recorder, the lender must act (in a writing or litigation) to state that the deed is not accepted. The borrower cannot force the lender to accept a deed to property by simply recording it. The conveyance, while clouding the enforceability of the lender’s trust deed, is ineffective until the lender’s conditions for acceptance are met.
Consideration given for a deed
A grantor’s receipt of consideration is not necessary for a voluntary conveyance of real estate by deed. A deed is not void for lack of consideration received by the grantor for conveying the property. [CC §1040]
Further, without fraud or misrepresentation on the part of a buyer of real estate, a deed cannot be voided or rescinded by the seller for the buyer’s failure to pay the balance due on the purchase price. A delivered deed is not void or voidable and the title remains with the buyer when the buyer fails to tender the balance of the purchase price he agreed to pay to the seller.
The seller, having conveyed the property, can only recover his money losses in a judgment. [Lavely v. Nonemaker (1931) 212 C 380]
However, if the buyer promises to pay a portion of the purchase price after taking title and the deferred payment on the price is unsecured, the seller is entitled to a vendor’s lien on the property sold for the portion of the price that remains unpaid.
Also, when a grantor conveys real estate to a grantee for the purpose of avoiding creditors by stripping the grantor/debtor of his assets, the conveyance can be set aside by the creditors as a fraudulent conveyance. [CC §§3439 et seq.]
A conveyance will be considered fraudulent if:
the owner intends to defraud creditors by avoiding payment;
a reasonably equivalent value is not received by the owner in exchange for the property transferred; and
the owner is or will be insolvent on the conveyance, or he intended or should have known he would incur debts beyond his ability to pay. [CC §3439.04]
Recording the grant deed
To convey real estate, the deed does not need to be recorded. A deed that is delivered conveys an interest in real estate even if the deed is not capable of being recorded.
For example, title to an owner’s undivided one-half interest in real estate is vested in the owner and a co-owner as joint tenants.
The owner signs and delivers a deed conveying the property to a grantee, an act which severs the joint tenancy with the co-owner. The owner’s signature on the deed is not acknowledged by a notary public, a requisite to its being recorded. [Calif. Government Code §27287]
The co-owner claims the deed signed by the owner (now deceased) was not delivered since the grantor’s signature on the deed was not acknowledged.
However, delivery of the deed is not affected by the fact that the deed was not acknowledged or recorded. The owner’s delivery of the deed to the grantee was sufficient to sever the joint tenancy. [Gonzales v. Gonzales (1968) 267 CA2d 428]
A deed need only be recorded to put future buyers or encumbrancers on notice of the transfer. Recording the deed perfects the interest conveyed against others who might later claim an ownership, security or leasehold interest in the property.
A deed capable of being recorded with the county recorder must include:
identification of the person requesting the recording and to whom the document will be returned by the county recorder, indicated at the top left hand corner of the deed [Gov C §27361.6]; and
the address where and to whom tax statements are to be sent by the county tax collector, indicated at the bottom of the first page. [Gov C §27321.5]
Failure to identify the person requesting the recording of the deed, where the deed is to be sent after recording, and where the local real estate tax statements are to be sent does not affect the validity of the deed or the constructive notice to others implied by recording the deed. [Gov C §§27321.5; 27361.6]
The deed submitted for recording must also include the amount of documentary transfer tax to be paid. The deed will not be recorded by the recorder unless the documentary transfer tax is paid at the time of the recording. An additional transfer tax may be charged by the city, county or both the city and the county. [Calif. Revenue and Taxation Code §§11901 et seq.]
A deed submitted for recording, which constitutes a change of ownership and is subject to reassessment under Proposition 13, should be accompanied by a change of ownership statement for the county assessor. [Gov C §27280; Rev & T C §480]
If the deed submitted to the county recorder does not include a change of ownership statement, the recorder will record the document and either:
include a change of ownership form with the return of the recorded deed; or
provide the assessor with the identification of the recorded document not accompanied by the change of ownership statement. [Gov C §27321]
Also, a notary public acknowledging an individual’s signature on a deed affecting the title to real estate, such as a grant deed, quitclaim deed or trust deed, will require the individual to place his thumbprint in the notary’s journal. The thumbprint requirement does not apply to the recording of a trustee’s deed or a reconveyance of a trust deed. [Gov C §8206(a)(2)(G)]
Void vs. voidable deeds
Void and voidable are terms which seem similar but are distinguishable by the date they affect the validity of a deed.
Void deeds are unenforceable and never convey an interest in the real estate at any time, a concept called void ab initio – void from the beginning.
If title is claimed under a void deed, the claim of ownership must fail, even if the grantee purchased the property in good faith without any notice of a defect in title or in the conveyance.
For example, a seller has been adjudicated as insane and unable to manage his affairs (incompetent). The court appoints a guardian to manage the seller’s affairs.
A buyer, unaware of the seller’s condition or guardianship, purchases real estate from the seller. The buyer obtains a grant deed to the property from the seller.
Is the deed on the sale of the real estate a valid conveyance since the buyer was unaware of the seller’s condition and paid a fair value for the property?
No! Prior to the conveyance, a court found the seller to be incompetent and appointed a guardian. The appointment of a guardian by the court is considered notice to all of the seller’s condition – whether or not a notice of appointment is recorded – since adjudication of the seller’s incompetence is considered notice.
Thus, the buyer’s status as a bona fide purchaser of title from an adjudicated incompetent does not shield the deed from being set aside. The deed was void at its inception, without legal effect at any time. [CC §40]
Other examples of void deeds include:
a deed signed and delivered by a seller under the age of 18 – incapacity [Calif. Family Code §6701];
a deed handed to the grantee with the intent it is not to be effective until the owner’s death – conditional delivery [Estate of Pieper, supra];
a deed materially altered without the grantor’s consent [Tannahill v. Greening (1927) 85 CA 714]; or
a forged deed. [Meley v. Collins (1871) 41 C 663]
Voidable deeds
A voidable deed, unlike a void deed, is a deed which is valid and enforceable after delivery – until it is challenged because of a defect and a court order declares the deed to be invalid.
Examples of voidable deeds include:
a deed obtained through false representations, such as a grantee who acquires title at a trustee’s sale by claiming to have superior knowledge concerning the property in order to misrepresent the condition of title and thereby induce the owner to allow the property to be foreclosed on [Seeger v. Odell (1941) 18 C2d 409];
a deed obtained through undue influence or threat, such as imprisoning and restraining the owner until the owner signs a grant deed [Campbell v. Genshlea (1919) 180 C 213]; or
a deed from a grantor of unsound mind, but not entirely without understanding, made before the grantor’s incompetency to convey has been adjudicated. [CC §39]
Unlike void deeds, a voidable deed is enforceable by a bona fide purchaser or encumbrancer when title is held by the grantee under a voidable but not yet invalidated deed.
For example, a loan secured by real estate is in default. The owner is concerned the property might be sold through foreclosure, affecting his credit rating. The owner is approached by a foreclosure consultant who, through fraudulent threats and harassment, is able to obtain a grant deed from the owner.
The consultant, as the grantee under the deed, takes possession of the property and refinances it by obtaining a new loan to pay off the old loan. The new lender, unaware the grantee obtained the grant deed by fraud, is secured by a trust deed on the property now vested in the name of the foreclosure consultant.
Later, the original owner sues the foreclosure consultant to set aside the deed as voidable. The owner records a notice of pendency of action, referred to as a lis pendens. The grant deed is later declared invalid since the grantee, the foreclosure consultant, used threats and undue influence to fraudulently obtain the deed.
Meanwhile, the new lender whose security interest rests on the voidable deed begins foreclosure on the note and trust deed.
The owner, having set aside his deed as voidable, now claims the lender cannot foreclose since the deed on which the lender’s trust deed was acquired has been declared invalid.
Can the lender enforce the trust deed created by the grantee under the fraudulent deed which has been declared invalid?
Yes! The deed was voidable, not void, when it was signed and delivered to the grantee who executed the trust deed now in foreclosure. The lender became an encumbrancer before the grantor (prior owner) challenged the validity of the deed to the grantee (foreclosure consultant).
Thus, the lender is considered a bona fide encumbrancer for value and entitled to enforce the note and trust deed since the trust deed was recorded before the lender had actual or constructive notice (by the lis pendens) of the owner’s challenge, which was ultimately successful in having the grant deed declared invalid. [Fallon v. Triangle Management (1985) 169 CA3d 1103]
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