The Problems with an Unrecorded Deed

 

A deed is a legal document used to transfer real property ownership from one person or entity (the grantor) to another (the grantee). In most cases, the transfer occurs at the close of escrow of the sale of the property with the seller being the grantor and the buyer being the grantee.  The escrow/title company will then generally record the deed at the county recorder’s office. 

Recording the deed gives the public notice that the grantee/buyer now legally owns the property.

Arizona statute requires: 

Any document evidencing the sale, or other transfer of real estate or any legal or equitable interest therein, excluding leases, shall be recorded by the transferor in the county in which the property is located and within sixty days of the transfer. In lieu thereof, the transferor shall indemnify the transferee in any action in which the transferee's interest in such property is at issue, including costs, attorney's fees and punitive damages.  A.R.S. §33-411.01

But there are times when deeds are signed and delivered, but not recorded.  This may be done in the mistaken belief that the unrecorded deed will avoid probate in estate planning, to avoid taxes, or a variety of other reasons – some done out of ignorance of the law and others in violation of the law.  Many of the cases filed in court involving unrecorded deeds (or unrecorded deeds of trust) are complicated with complex arguments on both sides. 

Arizona follows a notice recording statute, which means that, while unrecorded transfers are valid between the parties to the deed (grantor and grantee), the grantor who, in violation of A.R.S. §33-411.01, fails to record the transaction, opens the grantee up to claims from future bona fide buyers for value.  See, A.R.S. §33-411 (No instrument affecting real property gives notice of its contents to subsequent purchasers or encumbrance holders for valuable consideration without notice, unless recorded as provided by law in the office of the county recorder of the county in which the property is located.).

A.R.S. §33-412, states in part: 

A. All bargains, sales and other conveyances whatever of lands, . . . and deeds of trust and mortgages of whatever kind, shall be void as to creditors and subsequent purchasers for valuable consideration without notice, unless they are acknowledged and recorded in the office of the county recorder as required by law.

B. Unrecorded instruments, as between the parties and their heirs, and as to all subsequent purchasers with notice thereof, or without valuable consideration, shall be valid and binding.

An unrecorded deed can cause numerous problems for the grantee, such as:

• The grantee will likely be unable to obtain a loan using the property as security, insure the property, or sell it.
• The grantor may be able to sell the property to another buyer since the grantor is still listed as the owner at the county recorder’s office.
• Any liens recorded against the grantor may also be recorded against the property, since the grantor is still listed as the owner at the county recorder’s office.

Ensure all deeds are recorded and title insurance is obtained in every transaction.  All deeds transferring real property should be recorded to protect the grantee.  Further, title insurance should always be obtained to protect the grantee from covered title defects.  See, ABA Title Insurance:  Why It's Important and What to Look For.

 

 K. Michelle Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona REALTORS®.  She is also the author of the book - Arizona Real Estate: A Professional's Guide to Law and Practice (3rd Ed.) .  Watch for the Fourth Edition, which should be available soon. 

 For more real estate related articles, visit Michelle’s Blog at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)

This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.  6/28/23