What is the Effect of an Unrecorded Deed?

A deed is a legal document used to transfer real property ownership rights from one person or entity (the grantor) to another (the grantee). In many cases, this transfer occurs due to the property being sold, with the seller transferring the property to the buyer. Typically, a deed is recorded with the local county register or recorder of deeds. Recording the deed gives the general public notice that the transfer has been made and the grantee now legally owns the property.

Not recording a deed can cause problems for the grantee. They may find that they are unable to obtain a mortgage, insure the property, or sell it. An unrecorded deed may also make it possible for the grantor to sell the property to one buyer and subsequently sell the same property to a different buyer. In such a case, the property could be sold out from under the original buyer because they failed to record the deed.

Whether this last scenario is legally permissible depends on state laws that determine which party prevails when there are conflicting ownership claims to a property.

Title versus Deed
A deed is a document that confers property ownership rights associated with title to a property. Both the deed and title to the property transfer from the grantor to the grantee when real estate is conveyed. But a title and a deed are not the same thing.

Title refers to a property owner’s legal rights, such as the right of possession, the right of control, and the right of disposition. The title is not a document—it is a legal right of ownership.

The deed, on the other hand, is a physical document that transfers ownership of property from the grantor to a grantee. It contains a legal description of the property and the names of the grantor and grantee. To make a property transfer official, the grantor must sign the deed, and the deed must be delivered to and accepted by the grantee. At the time of the conveyance or purchase, the deed and the title transfer from the grantor to the grantee.

Recording the Deed
The grantee, the one receiving the property, is responsible for recording the property deed under state law. Deeds should be recorded in the appropriate government office as soon as possible after the property is purchased by or conveyed to a new owner.

The recording of a deed puts the transaction on public record and provides notice to others that the grantee owns the property. If the deed is not recorded, the party holding the deed may not be recognized under the law as the legal property owner to third parties, even though the deed may be legally effective to transfer the property from the grantor to the grantee.

If a deed is not recorded, it is virtually impossible for the public to know that the transfer of the property occurred, and the legal owner of the property could appear to be the prior owner rather than the new grantee. Numerous problems can then occur. For example, a lender could deny a mortgage application if a property deed is not recorded in the new owner’s name.

Not filing a deed could also raise a bigger issue. If the public record does not reflect a transfer of ownership, the grantor could transfer the property a second time to a different grantee. A subsequent buyer who did not have notice of the prior transfer may have a stronger ownership claim than the person who holds the title but did not record the deed.

Bona Fide Purchasers and Conflicting Property Claims
In most states, after a deed is recorded, it is not possible to sell to the same property to another buyer who could be seen as a bona fide purchaser.

A bona fide purchaser is a buyer who purchases a property for a reasonable amount with no reason to believe that it belongs to another person or is subject to another party’s claim. If a property owner conveys the property to another, but the conveyance is not recorded, the owner could possibly convey the same property to one or more other buyers, and the first buyer to record their deed could be seen as the legitimate buyer.

So it is important to remember, if a buyer does not record their deed, they are not publicly recognized as the property owner. Therefore, if the first buyer does not record their deed and a second conveyance of the same property occurs, the second buyer could be declared the rightful property owner if they record their deed before the first buyer.

Jurisdictions differ on how they deal with conflicting property claims. They can be divided into three different types:

  • Notice jurisdictions allow a subsequent bona fide purchaser to prevail over an earlier buyer if the bona fide purchaser did not know about the previous transfer and the earlier buyer failed to record the deed. In a notice jurisdiction, recording a deed eliminates the risk of there being a subsequent bona fide purchaser, because all buyers have a responsibility to perform a title search that would reveal a previous property sale. If the deed has been recorded, any claim that a second purchaser was unaware of the initial sale would therefore be due to their own negligence, disqualifying them as a bona fide purchaser.
  • Race-notice jurisdictions allow a subsequent bona fide purchaser to prevail over the first purchaser only if the bona fide purchaser records their deed before the first purchaser. The purchaser who records their deed first is recognized as the legal property owner. Thus, it is a “race” between the two buyers to record their deed—but the subsequent bona fide purchaser is only allowed to compete in the race if they did not know about the earlier property transfer (i.e., they did not have notice).
  • Race jurisdictions do not consider whether a second purchaser had notice of the earlier purchase. That is, the second purchaser does not have to be a bona fide purchaser. It is a pure race between the two parties to record their deed first, even if the second purchaser knows that an earlier unrecorded conveyance has taken place. Race jurisdictions are uncommon.

Know the Law of Deeds Where You Live
Michigan has a race-notice statute that places later purchasers on constructive notice. Typically, the buyer’s or grantee’s title or escrow agent is responsible for filing the property deed at the local records office when a real estate purchase or conveyance closes. It is advisable that all grantees use a title or escrow company. Grantees who do not record their deed themselves should request a copy of the recording page from their agent or local government office.

An unrecorded deed can pose significant problems—including the problem of conflicting ownership claims—and it should be recorded as soon as possible. Earlier buyers that lose out to a subsequent buyer may be able to sue the seller and recover the purchase money.

Let Us Help
To discuss a deed or title issue, please contact our office and schedule an appointment.