Michigan Covenant Deed Form
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What Is a Michigan Covenant Deed Form?
A Michigan covenant deed form conveys property to the new owner with a limited warranty of title. A covenant deed’s limited warranty splits the risk of title problems between the current owner who signs the deed (the grantor or transferor) and the new owner (the grantee or transferee). The transferor promises that he or she has done nothing to cause a problem with the property’s title. The transferor makes no promises about what might have happened before he or she owned the property.
What Is Warranty of Title?
Warranty of title is a guarantee included in some deeds about the validity and status of the property’s title. The transferor gives the guarantees to the new owner and agrees to be legally responsible for any title issues within the scope of the warranty. The warranty places the risk of title problems on the transferor. The new owner can sue the transferor for breach of warranty if a title issue is later discovered.
A deed that provides a complete warranty of title (a warranty deed) guarantees that there are no undisclosed problems with the property’s title.1 The transferor guarantees the deed transfers good, clear title to the property and that there are no liens, assessments, taxes, or other third-party claims against the property’s title. A complete warranty of title covers any issues that arose at any point in the property’s chain of title—even issues from before the transferor acquired the property.
A Michigan covenant deed provides a partial warranty that covers title issues caused or allowed by the transferor. This means that the transferor bears the risk of title issues that arose while he or she held title, and the new owner bears the risk for any other issues.
Other Names for a Michigan Covenant Deed Form
A Michigan covenant deed is the functional equivalent of what most other states call a special warranty deed or a limited warranty deed. Other names include grant deed (in California) or statutory warranty deed (in Alabama). Like a covenant deed, each of these deed forms conveys property with a limited warranty of title.
In Michigan, a covenant deed is sometimes called a Deed C, but the alternate names used in other states should be avoided in Michigan. Michigan does not recognize limited warranty deeds or special warranty deeds. In fact, using the word warranty in a Michigan deed that provides anything less than a complete warranty of title is against the law in Michigan.2
How Do Michigan Covenant Deed Forms Relate to Other Forms of Deeds?
The distinguishing feature of a Michigan covenant deed form is the limited warranty of title it gives the new owner. A covenant deed’s warranty of title is limited because the person who signs the deed only promises that he or she has not done or allowed anything to cause a title problem.3 If that is not true, the new owner can sue the prior owner for breaching the warranty of title.
A covenant deed divides the risk of title problems between the parties. Michigan’s two other main types of deeds place all of the risk on one party or the other.
Michigan Warranty Deed Form
A Michigan warranty deed form provides a complete warranty of title.4 The warranty guarantees that the deed will pass good title to the new owner and that no encumbrances—liens, mortgages, assessments, taxes, or other third-party claims on the property—affect the property’s title. The owner who signs a Michigan warranty deed is responsible for all title issues, even issues that arose before that owner owned the property.
Michigan Quitclaim Deed Form
A Michigan quitclaim deed form provides no warranty of title.5 A quitclaim deed transfers whatever ownership interest the transferor owns (if any) but does not guarantee a clear title or that the transferor actually owns the property.6 The new owner bears all risk of title problems and cannot sue the transferor for breach of warranty if there ends up being a problem with the property’s title.
Michigan Title Insurance and Covenant Deeds
The increased popularity of title insurance has lessened the importance of a deed’s warranty of title in the sale context. Title insurance is an insurance policy in which the insurer agrees to compensate the insured person (usually the owner or a mortgage lender) for any financial loss a title problem causes.7
A warranty from the seller partially protects a new owner who takes title under a Michigan covenant deed. A title insurance policy supplements the covenant deed’s protection by covering the property’s entire chain of title (not just the period while the transferor held title). Title insurance also ensures there is a reliable payment source (the insurance company) if an issue arises, and title companies arrange for a thorough examination of the property’s title history before issuing a policy. This provides added protection to both the buyer and the seller.
Michigan Covenant Deed Forms and Other Michigan Deeds Used in Estate Planning
The defining feature of a Michigan covenant deed is the limited warranty that it provides. Other types of Michigan deeds used in estate planning are defined by how they allow property to avoid probate.
- Michigan life estate deed form. A Michigan life estate deed avoids probate by dividing real estate ownership into a lifetime interest (the life estate) and a remainder interest that gives the beneficiary the right to own the property after the original owner dies. When the original owner dies, the beneficiary takes title without probate. A life estate deed limits the original owner’s right to sell, transfer, or mortgage the property without the beneficiary’s consent.
- Michigan lady bird deed form. A Michigan lady bird deed form (also called an enhanced life estate deed) divides ownership like a life estate deed, but also reserves greater (or enhanced) rights in the property to the original owner. An owner who records a Michigan lady bird deed can still sell, transfer, or mortgage the property until the owner’s death without involving the beneficiary.
- Michigan survivorship deed form. A Michigan survivorship deed avoids probate by transferring property to the current owner and a new co-owner with a right of survivorship. Due to the right of survivorship, a surviving co-owner takes complete title to the property when the other co-owner dies—with no need for probate. A Michigan survivorship deed must transfer the property to the co-owners using a co-ownership form that has a right of survivorship—either joint tenancy with right of survivorship or (if they are married) tenancy by the entirety.8
Estate-planning deeds are named for their probate-avoidance features—not for their warranties. Thus, two names may properly apply to the same deed. For example, a Michigan covenant deed may also be a life estate deed, or a quitclaim deed may also be a lady bird deed.
Common Uses of Michigan Covenant Deed Forms
The parties to a transfer use a covenant deed when the transferring owner does not want to provide a full warranty of title but is willing to provide a limited warranty of title. Covenant deeds are often used when property is being transferred from a bank or other business entity that can accept the risk associated with the limited warranty of title provided by a covenant deed but is not comfortable with a complete warranty deed. Covenant deeds can also be used for arms-length sales—particularly when title insurance supplements the partial warranty.
Property owners often use covenant deeds to re-title property when actual control of the property will not be changed. For example, a covenant deed might transfer property to a living trust or an LLC that the transferor owns or controls. Because the transferor still has an economic interest in the property after the transfer, he or she assumes little financial risk by providing a covenant deed.
How to Create a Michigan Covenant Deed
Covenant deeds were developed in response to a Michigan law enacted in 1931 that prohibits the use of the words “warranty deed” in any deed that is not an absolute warranty deed.9 Under this unique Michigan law, it can sometimes be a crime to use the incorrect name for a deed.
Michigan law does not provide model language for covenant deeds. A Michigan covenant deed must have language that creates the limited warranty without using words that Michigan law disallows. A covenant deed must also meet Michigan’s general requirements for deeds. It must be formatted according to Michigan’s standards (including page size, margin, and signature and notarization language), and it must also include the standard elements for a valid, recordable deed. The elements include the parties’ names, an accurate legal description, a statement of consideration, and the transferor’s notarized signature.
It is important to use a covenant deed form that is created for compliance with Michigan law. A deed that is created for another state or that fails to use the right language can cause future title issues, result in an invalid or unrecordable deed, or even amount to a crime under Michigan law.
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