Does it Matter if Your Minnesota Home is Abstract or Torrens Property?

Ownership of real estate is determined in one of two ways in Minnesota – the Torrens system or the Abstract system.

Does it matter which one your Minnesota home is titled under? The answer to that question is both “yes” and “no”.

However, being aware of which system your home is under may save you some headaches when you want to sell your home.

Namely, if your home is Abstract property, there is a greater possibility of unexpected surprises impacting the marketability of your home’s title.

With most Abstract property, there is no title problem. However, if, for example, a home passed through an estate that did not have the assistance of legal counsel, there could be title problems. Similarly, if family members were passing ownership back and forth between them, without the assistance of legal counsel, there could be title problems.

If there is a title problem, and you don’t learn about the problem until days before the closing of the sale of your house, your sale transaction may be disrupted. Last minute problems could chase your buyer away, and damage the marketing momentum that you’ve attempted to achieve to get the highest price for your home.

In one recent Minnesota situation, the adult children of the deceased homeowner drafted deeds in which some of the children transferred their share of the home to certain other children of the deceased. The deeds for this Abstract property were submitted to the County Recorder’s office and were recorded.

Only when the house was “sold” and awaiting the closing of the transaction was it discovered that the Estate of the deceased homeowner still had title to the property because no one had ever drafted a deed from the Estate to the children. Thus, the deeds between the children were not effective because there was no proper chain of title.

How could this happen given that the County Recorder’s office accepted the deeds from the children passing shares of the house to each other? The answer lies in how the Abstract property system works vs. the Torrens system.

Each deed for Torrens property, delivered to Minnesota county officials in the county where the property is located, is scrutinized by the County Registrar of Titles before the deed is accepted and a Certificate of Title is issued.

Abstract property deeds are not similarly scrutinized at the time of filing because Abstracts of Title are prepared and updated by private companies/attorneys and not by the county. And, private companies/attorneys tend to enter the picture only when property is being sold or another problem arises.

Stated another way, the title under the Torrens system is kept up to date. Consequently, a buyer of Torrens property typically can determine the quality of title by simply reviewing the Certificate of Title, which lists all of the documents affecting title to the property, including mortgages, easements and liens.

With Abstract property, the title is not kept up to date. Mortgages and liens impacting title may be filed with the County Recorder in the county where the property is located. However, there may be factors impacting title that were not recorded. The Abstract of Title is updated when the property is sold because of the importance of clear title to a prospective buyer, but the title for Abstract property may not be updated prior to that time.

The property’s title status becomes particularly important when the property is being sold because the prospective buyer and buyer’s lender wants assurance that the title is clear. Without clear title, the prospective buyer risks losing the property or spending money to “fix” the seller’s problem.

Only a few states use the Torrens system of registration, and Minnesota is one of them. The Torrens system was accepted in Minnesota in 1901, and is named after Sir Robert Torrens, an Australian, who developed the system. The purpose of the Torrens system was to set up a registration process to simplify transfers of property.

In Hennepin County, Minnesota – the county where Minneapolis is based – county officials estimate that 45% of the parcels are Torrens property and that 55% are Abstract.

Abstract property may be switched to the Torrens system, but many owners don’t switch because of the expense and time involved.

Abstract property is not inferior, legally speaking, to Torrens property. But, use an attorney when transferring property out of an estate or between family members. Money spent up front to properly handle the title will save headaches and larger expenses that will be incurred later if titling mistakes are made.

 ©2013 Wittenburg Law Office, PLLC. All rights reserved.

Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney. An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.

Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305     952-649-9771   bonnie@bwittenburglaw.com  www.bwittenburglaw.com