DEALING WITH TITLE COMPANIES – THE EXPERTS SPEAK

By Thomas J. Murphy

           On April 10^th, the Estate Planning, Probate and Trust Section of the Maricopa County Bar Association had its monthly breakfast seminar with a panel of title company representatives who discussed issues commonly encountered by estate planning and probate attorneys.  This generated great interest as evidenced by the fact that it was the largest breakfast meeting ever held by the Section, with over 120 attorneys in attendance.

            The seminar began with a discussion of the various forms of deed.  It was explained that a quitclaim deed does not warrant or guarantee ownership or anything else.  It simply states that the transferor gives whatever interest he/she may have in the property.  On the other end of the spectrum is a warranty deed in which the transferor warrants that he/she has title subject to matters of record, such as taxes and encumbrances. Neither form of deed is commonly used by knowledgeable practitioners.

            What is commonly used is the special warranty deed that, as one panelist indicated, is “a huge gray area”.  The transferor warrants acts that he/she has done but is not warranting anything that was done before the transferor obtained the interest in the property. 

The panelists were in agreement that the use of such a deed would not require a rider or endorsement to the existing title policy but that obtaining one would nevertheless is a prudent course of action.  Such a rider can typically be obtained for $75.00.  If a quitclaim deed was used, the rider must be obtained or the transfer will not be covered.

When deeding property into a revocable trust, the panel agreed that the grantor/trustee would be included in the title policy coverage.  However, as to successor trustees, the title company will want to know who the new trustee is and will likely want to see the applicable portions of the trust agreement.  And even if there is a subsequent problem, the panelists emphasized that the original insured is always covered by the title insurance policy.

The panel also agreed that, when deeding into a grantor trust, there is no need for the title company to review the trust agreement since the title companies can rely on the statutory authority given to trustees.

These transfers become more complicated when a limited liability company or family limited partnership is used.  If the husband and wife are the only members/partners, then it is unlikely that a title company would have difficulty with the transfer.  However, if there are children or other family members as members/partners, then a new policy, and not just a rider or endorsement, will have to be obtained.

The panel provided very useful guidance regarding how to caption a deed involving a successor trustee.  For instance, suppose John and Mary Jones deed some property to their revocable trust with John and Mary named as trustees on the deed.  Later, their daughter Susan Jones becomes successor trustee.  When Susan subsequently transfers the property, the grantor portion of the caption on the deed should read “Susan Jones, successor trustee to John and Mary Jones, trustees of the Jones Family Trust”.  There needs to be language in the deed connecting Susan to John and Mary.

The issue of post-mortem recording of deeds was addressed by the panel.  The panel agreed that there is no problem if the unrecorded deed is to the revocable trust of the husband and wife.  However, if the unrecorded deed is from husband and wife to a son or daughter, then the title company will want some substantiation to verify that delivery took place while husband and wife were alive.  The panel also emphasized that the failure to record is a risky strategy because a creditor could record a judgment before the deed is recorded thereby giving the creditor superior rights to the grantee.

Another post-mortem topic addressed by the panel concerned alternatives to the form 74 that is no longer issued by the Arizona Department of Revenue.  The panel was not troubled by this development, indicating that simply recording the death certificate will be sufficient. 

The beneficiary deed was also discussed.  The panel noted the new legislation (HB 2334) amending ARS 33-405 that was signed by the Governor on April 8^th.  One problem that has been resolved by the new act is that the current owners can obtain a loan without having to revoke any existing beneficiary deed.  The new act also ascertains that a joint tenancy deed prevails over a beneficiary deed.  That is, if the joint tenant granting a beneficiary deed is the first to die, the surviving joint tenant takes title and the beneficiary deed is rendered void. 

In divorce matters, the panel agreed that a disclaimer deed is required in addition to any court decree.  As to the severance of community property rights by virtue of the filing of a marriage dissolution petition, the panel emphasized that no transactions will be covered by a title company until the decree is entered.   It was the consensus of the panel that ARS 25-211 and 14-2804 require entry of a dissolution decree.

One panelist indicated that his title company has had  occasion to address the title implications of a same sex marriage recognized in another state.  Until Title 25 is amended to recognize such marriages, an Arizona title company is unlikely to issue policies involving such marriages.

When recorded return to:

N-1 and N-2

c/o _____ Law Firm, Inc.

51 West Elliot, Suite 106

Tempe, Arizona 85284

Legal Description:

The above conveyance is effective upon the death of the last Grantor to die.

SUBJECT TO all taxes and other assessments, reservations in patents and all easements, rights of way, encumbrances, liens, covenants, conditions, restrictions, obligations and liabilities as may appear of record or in the most recent title insurance policy on the subject real property. It is the intent of the parties to maintain and not waive all rights under the most recent title insurance policy on the subject real property.

Exempt from Affidavit of Real Property Value requirements pursuant to A.R.S. §11-1134(B)(12).

Dated this d-t.

________________________________

N-1, Grantor N-2, Grantor

Acknowledged before me this d-t, by N-1 and N-2, as Grantors.