Transfer of Property, Titles, Deeds and Settlement
Transfer of Property
How a transfer happens
Voluntary transfer occurs by deed, land contract, or court order; involuntary transfer occurs by foreclosure, bankruptcy, or adverse possession. A valid deed requires a grantor with capacity, a grantee, words of conveyance, a sufficient legal description, and the grantor's signature - plus delivery and acceptance, which is where exam questions hide. Recording is not required to make a deed valid between the parties, but it is required to protect against later buyers.
The closing
Closing is the settlement of the transaction: payoff of existing liens, proration of taxes and rents, disbursement of the purchase price, and recording. Michigan does not require an attorney at closing; title companies commonly conduct closings. After closing, the buyer files a Property Transfer Affidavit with the assessor within 45 days and, if eligible, claims the principal residence exemption.
Prorations
Taxes are prorated on a 365-day basis in most Michigan practice. Determine who owns each day and multiply the annual tax by the fraction of the year.
Transfer tax and exemptions
State transfer tax is $3.75 per $500 of consideration, and counties may add up to $0.55 per $500. Transfers between spouses, certain gifts, and some entity-to-owner transfers may be exempt, but the exemption must be stated on the declaration.
Traps
Charging transfer tax to the buyer (customarily seller-paid in Michigan); prorating with a 360-day year when the contract specifies 365; forgetting that the seller's existing mortgage must be paid off before the buyer's title is clear.
Worked example
Annual taxes are $3,650, and closing is July 1. The seller owns January 1 through June 30 = 181 days. $3,650 / 365 = $10.00 per day x 181 = $1,810 charged to the seller; the buyer takes the remaining 184 days.
Titles, Deeds and Settlement
Title quality
Marketable title is title free of reasonable doubt and encumbrances a buyer would object to. An abstract of title summarizes recorded instruments; title insurance protects against undisclosed defects, with an owner's policy protecting the buyer and a lender's policy protecting only the lender's interest. A title search traces the chain of title back to a reliable starting point.
Deeds
- Warranty deed - Michigan's statutory short form conveying all the grantor's right, title, and interest with covenants of title.
- Covenant deed - conveys title with specified statutory covenants, including seisin and quiet enjoyment.
- Quitclaim deed - conveys whatever interest the grantor may have, with no covenants at all.
Recording and priority
Michigan is a race-notice state under MCL 565.29: a later purchaser wins over an earlier unrecorded interest only if the later purchaser takes in good faith, for value, without notice, and records first. Actual, constructive, and inquiry notice all count.
Adverse possession
Michigan's statutory period is generally 15 years, and the possession must be open, notorious, exclusive, continuous, actual, and hostile.
Settlement
At settlement, the closing agent prepares a settlement statement listing debits and credits, obtains payoffs, collects funds, and records the deed and any mortgage.
Traps
Assuming a quitclaim deed is ineffective (it is effective to convey what the grantor owns, it just carries no promises); believing recording cures a forged deed; confusing constructive notice (recorded documents) with actual notice; forgetting that a buyer takes subject to recorded easements even without reading them.
Worked example
Owner deeds to A but A never records. Owner then deeds to B, who pays value, has no notice, and records immediately. Under race-notice, B prevails because B recorded first without notice.