Unrecorded Deed

What Is an Unrecorded Deed?

An unrecorded deed refers to the situation where the title to a property, usually real estate, is not registered with the appropriate public records department.

Understanding an Unrecorded Deed

An unrecorded deed is a deed for real property that neither the buyer nor the seller has delivered to an appropriate government agency. Unrecorded deeds can present many issues for sellers (or grantors) and buyers (or grantees) such as proof of ownership and tax implications.

A deed transfers specific rights of ownership to a piece of real property between two parties. Most jurisdictions require that sellers file an original deed with a government agency that maintains such records in a given municipality. In the United States, this often takes place at the county level. This record serves to notify the public of the sale of property, which in turn provides assurance of current ownership to any entity involved in transactions affected by the property, such as the issuance of a mortgage or a home equity loan, where the property serves as collateral.

Failure to record a deed effectively makes it impossible for the public to know about the transfer of a property. That means the legal owner of the property appears to be someone other than the buyer, a situation that can have serious ramifications. A buyer, for example, could encounter great difficulty in selling, insuring, or obtaining loans for a property if financial institutions and insurance companies cannot establish clear title. Worse, an unrecorded deed creates potential for a seller to engage in a subsequent sale of the same property to yet another buyer.

Most mortgage companies require prospective home buyers to conduct a title search and secure title insurance on the property to be purchased. The title search examines existing public records to ensure a clean transfer of title, a process that could be disrupted by outstanding liens or past-due property taxes.

Self-financed purchasers would do well to consider doing a title search and securing title insurance for any property they want to buy.

Title insurance offers a further backstop by protecting the insurance holder from any losses due to deficiencies in the title not turned up by the title search. Buyers should note that lenders often require a separate title insurance policy that protects only the lender's interest in the property. Therefore, buyers may want to purchase a policy covering their interests as well.

Suppose, for example, that a homeowner self-funded the purchase of a home with an unrecorded deed and the seller neglected to close out an existing second mortgage. If the seller were to default on the loan, the bank would file a lien against the collateral, which would still appear to belong to the seller because of the unrecorded deed.