Conveyance

What Is a Conveyance?

The term conveyance refers to the act of transferring property from one party to another. The term is commonly used in real estate transactions when buyers and sellers transfer ownership of land, building, or home.

This is done using an instrument of conveyance—a legal document such as a contract, lease, title, or deed. The document stipulates the agreed-upon purchase price and date of actual transfer, as well as the obligations and responsibilities of both parties.

Key Takeaways

  • Conveyance is the act of transferring property from one party to another.
  • The term is commonly used in real estate transactions when buyers and sellers transfer ownership of land, building, or home.
  • A conveyance is done using an instrument of conveyance—a legal document such as a contract, lease, title, or deed.
  • Such transfers may be subject to a conveyance tax.
  • Fraudulent conveyance is an unfair or illegal transfer of assets done in order to avoid creditors during bankruptcy or to avoid taxes.

Understanding Conveyance

In finance, the term conveyance represents the act of legally transferring property from one entity to another. So when two parties engage in the sale of a piece of property, they transfer ownership through a conveyance. For instance, when a car owner legally signs the title over to a buyer, they are engaged in a conveyance.

The term conveyance is commonly associated with real estate transactions. Conveyance of ownership of real estate is also referred to as conveyancing, and the legal representative overseeing the process can be referred to as a conveyancer. Real estate transactions often incur a tax called a conveyance tax or a real estate transfer tax. This levy is imposed on the transfer of property at the county, state, or municipal level.

A conveyance is normally executed using a conveyance instrument. This is a written instrument or contract that outlines the obligations and responsibilities of both the buyer and the seller including the purchase price, date of transfer, and any other terms and conditions associated with the sale. The instrument may be a deed or a lease—a document that transfers the legal title of a property from the seller to the buyer.

Legality of Conveyances

There are cases where one party doesn't live up to its obligations as outlined in the conveyance instrument or contract. When this happens, the other party can take the defaulting party to court to enforce the contract or to claim damages.

Conveyancing ensures that the buyer is informed in advance of any restrictions on the property, such as mortgages and liens, and assures the buyer of a clean title to the property. Many buyers purchase title insurance to protect against the possibility of fraud in the title transfer process.

Familial Conveyances

There are also legal distinctions of conveyances, mainly stemming from British law, that hold certain rights of conveyance within family estates or bloodlines:

  • Fee tail conveyances stipulate that property must remain within a family, and in particular be passed down to one's children. A fee tail only can remain in place as long as children remain alive.
  • Fee simple absolute conveyances provide a claim to one's heirs, who can then assume full rights of ownership and sell to whomever they wish, even outside of the family.
  • Fee simple defeasible conveyances are similar to the above but come with certain restrictions or conditions. If a condition is violated, the ownership claim reverts back to the grantor.
  • Life estate conveyances exist only as long as the owner remains alive, without respect to any heirs.

If the other party doesn't fulfill their obligations, you can take them to court to enforce the contract or to claim damages.

Types of Real Estate Deeds

Different forms of real estate deeds are used to make sure each party fulfills the conditions outlined in the conveyance. Some agreements may be more simple; others may hold one party contingent on several outcomes.

  • Bargain and sale deeds, sometimes called special warranty in other states, occur when the grantor makes assertions about the title, but the covenants in the agreement only relate to any time period in which the grantor owned the property. Commonly used by banks on foreclosed properties, these type of conveyances hold little to no claims regarding prior ownership of the property.
  • Quitclaim deeds are used to convey title without any covenants. The grantor of a quitclaim deed makes no assertion over the ownership or condition of the property. Quitclaim deeds are often used for gifting title as it is a basic type of deed that simply convey that the grantor does not hold any interest in the property being transferred.
  • Reconveyance deeds are used when prevailing conditions have changed and the deed needs to be "re-conveyed". This type of conveyance is used by mortgage lenders when a borrower has paid off their mortgage; with the debt having been satisfied, the lender no longer has conditional claims to the property.

Types of Conveyances

Real Estate Conveyances

Conveyance is a general term that applies in a legal sense beyond residential real estate. The conveyance in most real estate transactions is also known as the sale deed. Conveyance is the category, and sales deed is a type of conveyance within that category. There are several primary types of deeds used to transfer real estate:

The process behind a typical conveyance includes a review of liens and other encumbrances. it ensures all conditions have been met, settling all taxes and charges with the appropriate party prior to transfer, confirming financing, and preparing all the documents for final settlement. The documents provided for conveyancing typically include the deed, mortgage documents, certificate of liens, the title insurance binder, and any side agreements related to the sale.

In most states, it is illegal to transfer property to a third party in order to avoid creditors’ claims on that property. This is known as a fraudulent conveyance, and creditors can pursue their claim on the property via civil legal action.

Mineral Rights Conveyances

Conveyance also applies to the oil and gas industry. As land is a form of real estate with attached rights, exploration companies use the term conveyance to refer to contracts that transfer rights to or ownership of certain parcels of land to the company.

Among the most common conveyances is a contract granting mineral rights without turning over the title of the land, but conveyances are also used to establish the right of way for a company’s operations on a landowner’s property. The landowner is, of course, compensated for transferring these rights to the exploration company.

Other Real Property

Many forms of conveyance occur when real, tangible assets are transferred not just by physical possession but by signing over the title to the new owner. For example, consider buying a new car; whether through a dealership or private seller, the car is legally conveyed when the previous car owner signs the title over to the new car owner.

Another form of conveyance is the transfer of inventory. Consider a company that buys a large number of raw materials that must be transferred to its warehouse. Based on the agreed-upon shipping terms, conveyance of ownership may happen at acquisition, sometime during delivery, or when the goods are physically possessed by the buyer. This entire act of transferring ownership of property from one entity to another embodies conveyance.

Examples of Conveyances

Let's look at the transfer of a piece of land owned by an individual's grandfather. In the first example, the grandfather decides to sell the property to their grandson via an arms-length transaction and at fair market value. In this case, the deed is transferred at closing to the grandson, who becomes the new legal owner.

In a second case, the grandfather decides to gift the property to the grandson. Here, no money is exchanged for the value of the property, but a gift tax must be paid on any value greater than the prevailing gift tax exclusion amount. For 2022, the IRS set the gift tax exclusion amount as $16,000, and the gift tax exemption will increase to $17,000 for 2023.

In a third case, the grandfather dies and wills the property to the grandson. Again, the deed is conveyed but no money changes hands, and there is no gift tax. Instead, there may be an estate tax on any value exceeding $12.06 million for estates of decedents who died in 2022. The basic exclusion amount is increasing to $12.92 million for decedents who pass away in 2023.

Frequently Asked Questions

What Is a Conveyance Tax?

A conveyance tax is levied by a government authority (such as a municipality or state) on the transfer of real property. This tax is usually paid by the seller, although this may be negotiated prior to closing.

What Is a Voluntary Conveyance?

In a voluntary conveyance, the owner agrees to transfer property to a new owner, but does not receive full compensation (known as "consideration" in legal terms). For instance, when willed to an heir, voluntarily forfeited to a lienholder, or donated to charity.

What Is a Deed of Reconveyance?

A deed of reconveyance is a legal document issued by a lender or lienholder when a mortgage or other debt secured by real property is paid off. This deed releases the property owner from any further claims by the lender.

What Is a Fraudulent Conveyance?

Fraudulent conveyance occurs when a property is transferred for reasons meant to avoid taxes, creditors, or which otherwise constitutes illegal activity such as money laundering.

The Bottom Line

Conveyance is the process of transferring property from one party to another. Often relating to the transfer of investments such as real estate or securities, conveyance is heavily tied to legal processes to ensure proper documentation is maintained and applicable gift taxes (or exclusions) are followed. Conveyance not only transfers ownership of assets but delegates ongoing responsibilities and obligations of both sides of the transaction.

Article Sources
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  1. Legal Information Institute. "Fraudulent Transfer Act."

  2. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."