A grantor signs a deed and delivers it to the grantee. No law requires a deed to be filed and recorded. With one exception, a grantee is free to place the unrecorded deed in a drawer. Such an action, however, creates several problems. A grantee would be ill-advised to not file and record. That course of action could well lead to the grantee losing the property.
Taking out a mortgage loan to buy property mandates filing and recording the deed. The deed and the instrument securing the mortgage, sometimes known as a deed of trust, must be filed the same day the lender disburses the money. The lender has no security in the property until it is in the name of the grantee and the deed of trust is the first lien of record. Many lenders prohibit the closing agent from releasing any funds until all documents are recorded.
Most local jurisdictions tax real property as a source of revenue. The tax office only changes the name of the owner after a deed is recorded. The deed along with the name and address of the grantee is used to update the tax records. If a deed is not filed, the tax department will send all notices to the old owner. This could result in unpaid taxes or a failure to appeal a proposed increase in valuation. The grantee could lose valuable rights, or in a worst case scenario, lose the property to unpaid taxes.
Judgments and Liens
When a judgment is filed against an individual, it attaches to any real property owned at that time. For example, if the grantor, or seller, is sued by a credit card company for an unpaid balance and loses, the debt would attach to the real property sold to the grantee. This happens because the unrecorded deed leaves the real property in the name of the grantor. The grantee would then have to pay the judgment to clear title. This is the reason the last action by the closing agent before recording a deed is to check and make sure no last minute judgments or liens have been filed against the grantor.
When a deed is not recorded, a grantor could deed the property to a different buyer. That buyer would check the court records. Those records would show the grantor owned the property. If the second grantee took his deed to the courthouse and recorded it, he would have priority over the first grantee. That would leave the first grantee with a worthless piece of paper in a drawer.
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