This is the third in a three-part series on the different types of deeds you may encounter. Deeds are the instruments used when property is transferred from one owner to another in California, and the type of deed you have can affect when and how you can sell your property—so it’s worth understanding what you’ve got.
So far, I’ve reviewed grant deeds, quit-claim deeds, sheriff’s deeds, trustee’s deeds, tax deeds, and deeds on death. Anything but a straightforward grant deed tends to make title companies nervous because title companies are the ones who guarantee that the property you’re buying will be really and truly yours—they’re responsible for finding any other claims of ownership before you close escrow.
Usually, when properties change hands it’s a mutually beneficial arrangement agreed to by both buyer and seller, but not always. Sometimes owners are forced to give up their property, and this can lead to title claims which are enforced through lawsuits. The final types of deeds to review are deeds in lieu and adverse possession deeds.
Deed in Lieu
A deed in lieu is usually used in a “seller carry back” situation, when the original owner (Party 1) carries the financing for the buyer who is now the current owner (Party 2). Party 2 decides they don’t want to own the property anymore, but they don’t have enough equity to sell the property and pay off the loan. Rather than going into foreclosure, Party 2 signs a deed in lieu, transferring ownership back to Party 1. This is typically an amicable arrangement. It saves Party 1 the time and legal expenses of going through the foreclosure process, and it helps Party 2 maintain their credit rating. Plus, it’s the ethical thing to do. If you can’t pay for the property, then give it back.
Adverse Possession Deed
This may be the most unusual type of deed. It is in the same family as a prescriptive easement, which I’ve written about before. With both an adverse possession deed and a prescriptive easement, property owners can lose rights to their property by allowing others to lay claim to their property over time. An easement gives people other than the owner the right to use real property for a specific purpose. A prescriptive easement occurs when a property has been used uninterrupted for five or more years in a way that is “open and notorious” (that’s the legal description) and against the will of the owner.
On the coast, a common example is abalone divers making a footpath across someone’s property to gain access to the ocean. If that property is sold, those divers may have a prescriptive easement to continue to use that footpath forever. Note: If you give the trespassers permission to use the path, then they are not trespassing, and when the property changes hands, the divers have to get permission from the new owners to legally continue to use the path. They don’t have a prescriptive easement because they weren’t using the property against the owner’s wishes. Counter-intuitive, I know.
An adverse possession deed is similar to a prescriptive easement in that it involves someone laying claim to property against the owner’s wishes and without paying for it. A person can petition for an adverse possession deed after they occupy a property in a manner that, in legal terms, is “actual, open and notorious, exclusive, hostile, under cover of claim or right, and continuous for a certain number of years.”
In plain English, that’s someone who meets three criteria: 1. They have colorable title. This has nothing to do with Crayola crayons; rather, it means there’s something about the title that makes this person believe they have a right to it. 2. They behave as though they own the property and don’t try to hide it from anyone for five consecutive years. For example, they live on the property and put in a pool. And, 3. They pay property taxes.
Adverse possession deeds are rare, as you might imagine, and just because someone invests time and money into a property, and meets all three criteria above, doesn’t guarantee the courts will agree they should be awarded title, but it can and does happen, so it’s best to be aware.
As I’ve said before, if you have anything but a straightforward grant deed, it’s important to check in with a knowledgeable real estate lawyer. Your Realtor can refer to you a good one. You can reach me at firstname.lastname@example.org or call (707) 462-4000.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.