Unilateral Mistake: How to Avoid Issues with Gifts of Real Property

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  2. Unilateral Mistake: How to Avoid Issues with Gifts of Real Property
Real Estate

There’s a reason why most people hire REALTORS® or attorneys, or both, to assist with transfers of real property – so many things can go wrong. Most transactions involve an arms-length transaction between a buyer and a seller, both represented by a REALTOR®. However, one type of real property transfer often does not come under this umbrella: giving away real property as a gift, whether through a will, trust, or outright gift while the giver is still alive, also known as an inter vivos transfer.[1]

Many times, the owner of the real property will transfer the property through a quit claim deed. A quit claim deed is “a document that allows the transfer of a claim, be it an interest, right or title that the maker of the document may have in a property. The person granting the transfer may not have the absolute claim to the title.[2] While a quit claim deed is the easiest way to transfer title, it can come with its own set of pitfalls, since the owner of the property (the “Grantor”) is only transferring any title or interest they may have and cannot guarantee that it is marketable title. However, a bigger issue arises when the Grantor does have marketable title, but inadvertently makes a mistake in the transfer and subsequent recording of the deed.

For example, a Grantor may sign and then record a deed transferring all interest in the real property to a person or entity that is incorrectly named, or they may include the wrong legal description to the real property. Neither of these scenarios pose a big problem, unless the person who receives the real property from the Grantor, called a “Grantee,” tries to encumber or sell the real property. If they try to sell, a title company may not insure title, because it’s not even clear who owns the real property.

The easiest solution is for the Grantor to file an amended deed, but what if the Grantee contests what the Grantor is trying to do, or the Grantor is deceased or unable to do so? How does the Grantor or the Grantee fix the problem? Enter the doctrine of “unilateral mistake.” Unilateral mistake means that there is a mistake on one side of a transaction, as opposed to mutual mistake, where there is a mistake or misunderstanding on both sides of a transaction.

Normally in the case of a unilateral mistake, a court will not reform the document unless there is “fraud, inequitable conduct by the other party or knowledge by one party of the other party’s mistake.”  Yano v. Yano, 144 Ariz. 382, 385, 697 P.2d 1132, 1136 (Ct. App. 1985). This is to ensure that one party will not take advantage of the situation if the other party makes a mistake in drafting that benefits the other party.

In the Yano case, the grantors intended to convey their property to their children but retain a life estate. However, they accidentally conveyed their property to their children in fee simple via warranty deed, meaning that they did not retain a life estate or any other interest in the property. The grantors continued to live on and receive rents from the property. When one of their children’s beneficiaries requested an accounting of the rental income from the property, the grantors realized their mistake and filed a lawsuit seeking to reform the deed.

The Arizona Court of Appeals held that in the case of a “voluntary conveyance” like a gift of real property, “…the rule that reformation may be granted on the application of the grantor of a voluntary conveyance on the basis of unilateral mistake has been recognized in numerous jurisdictions and, under such circumstances, it is immaterial whether the grantee is cognizant of the mistake…We find the rationale of these authorities persuasive and hold that the grantors’ unilateral mistake was a sufficient ground for the court to reform the voluntary conveyances involved in this appeal.” Id. at 356. The Court reasoning in Yano was that if the grantor’s intent was clear but the grantor accidentally made a mistake, the Court will reform the deed to effectuate the grantor’s intent.

If you have questions concerning a transfer of real property or a mistake on a deed, the attorneys at Provident Law® can help. We are experienced in all aspects of real estate law and litigation, from drafting and recording deeds to quiet title actions.

Anne Courchaine is an Associate Attorney with Provident Law®, where she practices real estate, commercial litigation, and family law. Before joining Provident Law®, Ms. Courchaine served as a Navy Judge Advocate and as a Special Assistant United States Attorney for the Southern District of California.  She can be reached at a.courchaine@providentlawyers.com or 480-388-3343.

[1] This article does not address any tax implications from the gift of real property. For more information on potential tax consequences from gifts of real property, please see the IRS’s discussion of gift taxes at https://www.irs.gov/businesses/small-businesses-self-employed/gift-tax (last visited April 22, 2021).

[2]“What is Quit Claim Deed,” Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed., thelawdictionary.org, available at https://thelawdictionary.org/quitclaim-deed/#:~:text=Black’s%20Law%20Dictionary)-,What%20is%20QUITCLAIM%20DEED%3F,absolute%20claim%20to%20the%20title, (last visited February 19, 2021).

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