How a Michigan Covenant Deed Form Works
A Michigan covenant deed form conveys property to the new owner with a limited warranty of title. The person who signs a Michigan covenant deed promises that he or she has done nothing that would cause title problems, but makes no promises about what might have happened before he or she owned the property.
Other Names for Michigan Covenant Deeds
In some states, covenant deed forms are called limited warranty deeds, special warranty deeds, or statutory warranty deeds. In other states—like California—covenant deeds are called grant deeds. 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. Although a covenant deed (Deed C) is the functional equivalent of a limited warranty deed or special warranty deed in other states, it is important to call it by its proper name. Michigan does not recognize limited or special warranty deeds, and using the word “warranty” in a deed that does not give a full warranty of title is a crime in Michigan.
Relationship of Covenant Deed Form to Warranty of Title
Key Term: Warranty of Title. Title issues can be caused by many things, including errors in the public record, unknown liens against the property, undisclosed prior conveyances, forged deeds, missing heirs or unprobated wills, or disputes about boundary lines or surveys. Title issues often require legal action to fix and can decrease the value of real estate. If the property has no title issues, it is said to have clear title. A warranty of title is a legal guarantee from the transferor to the transferee that there are no title issues. If a deed makes a warranty of title, the transferee can sue the transferor over any title issues.
The distinguishing feature of a Michigan covenant deed form is the limited warranty of title. The warranty of title is limited in the sense that the person who signs the deed only promises that he or she has done nothing that would interfere with the new owner’s use and possession of the property. If that is not true, the new owner can sue the prior owner for breaching the warranty of title.
A warranty of title deals with risk allocation. The owner that signs the deed is responsible for any problems with title that arose while that owner owned the property, even if the owner did not know about the title issues. A warranty of title places risk on the prior owner and protect the new owner.
In the sale context, the increase in popularity of title insurance has lessened the importance of the warranty of title. Most buyers will purchase title insurance at the time of sale. Although the seller may sign a covenant deed, the buyer will have an insurance claim against the title company if there is a problem with title to the property. Because title insurance companies will research the chain of title before issuing a title policy, this provides added protection to both the buyer and the seller.
Comparison of Michigan Covenant Deeds to Other Forms of Michigan Deeds
A Michigan covenant deed form differs from both Michigan warranty deeds and Michigan quitclaim deeds.
- A Michigan warranty deed form provides a full, absolute warranty of title. The owner that signs a Michigan warranty deed is responsible for all title issues, even those that arose before that owner owned the property. This full warranty distinguishes a warranty deed form from a covenant deed form, which provides only a limited warranty of title.
- A Michigan quitclaim deed form provides no warranty of title. A covenant deed, in contrast, provides a warranty of title limited to the period when the prior owner owned the property.
Michigan covenant deeds also differ from other deed forms that do not relate to the warranty of title. These other deed forms include life estate deeds and lady bird deeds, each of which is used to avoid probate in Michigan.
Common Uses of Covenant Deeds
The parties to a deed use covenant deeds 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 warranty deed.
Covenant deeds can also be used to transfer property to a living trust or an LLC that the transferor owns or controls. Because the transferor will continue to have 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 Section 750.275 of Michigan Compiled Laws, which was enacted in 1931 to prohibit the use of the phrase “warranty deed” in any deed that is not an absolute warranty deed. Under this law—which is unusual—using the incorrect name for a deed is a crime.
Because of this history, there is no rigid format for a Michigan covenant deed form. The deed must be formatted in a way that meets Michigan’s general requirements for validity of a deed (including page size, margin, and signature and notarization language). It must also include the standard elements of other deed forms, including a valid legal description, statement of consideration, and a description of the manner in which co-owners will hold title.
It is important to use the correct language when creating a Michigan covenant deed. Failure to use the right words could cause title issues or even result in criminal charges. The deeds prepared by our Deed Generator were designed by attorneys to meet the requirements of Michigan law.