Legal Definitions - derivation clause

A derivation clause is a specific section found within a legal document, most commonly a deed of trust or a deed, that provides a concise history of how the current owner acquired the property. Its primary purpose is to establish a clear "chain of title" by referencing the immediate prior transfer of ownership.

This clause typically includes essential details about the previous transaction, such as:

• The name of the previous owner (grantor).
• The date when the property was transferred to the current owner.
• The recording information (e.g., book and page number, or document number) of the previous deed or legal instrument that established the current owner's title in the public records.

By providing this information, the derivation clause helps to confirm the legitimacy of the current owner's title and offers a direct reference point for anyone wishing to trace the property's ownership history through public records.

Examples:

• Residential Home Purchase: Imagine a couple, Sarah and Tom, purchasing their first home. In the deed of trust they sign with their lender, there would be a derivation clause. This clause would state something like, "Being the same property conveyed to the Grantors herein by deed from [Previous Owner's Name], dated [Date of Previous Sale], and recorded in the Official Records of [County Name] County, [State Name], as Instrument No. [Recording Number]."

  This illustrates how the derivation clause directly links Sarah and Tom's new ownership to the specific transaction where they acquired the property from the previous seller, providing a clear reference to the recorded document that established their title.

• Commercial Property Refinance: A business, "Innovate Corp.," decides to refinance its office building. When they sign a new deed of trust with a different bank, the derivation clause in this new document will refer back to Innovate Corp.'s original purchase of the building. It might read, "Being the same property conveyed to Innovate Corp. by deed from [Original Seller's Name], dated [Original Purchase Date], and recorded in Deed Book [Book Number], Page [Page Number], of the Public Records of [County Name] County, [State Name]."

  This demonstrates that even in a refinancing scenario, where ownership isn't changing, the derivation clause is crucial. It confirms that the current owner (Innovate Corp.) legitimately holds title to the property being used as collateral, by referencing the document that first granted them ownership.

• Sale of Inherited Property: After inheriting a piece of land from her grandmother, Maria decides to sell it. In the deed of trust prepared for the buyer, the derivation clause would explain how Maria acquired the property. Instead of a prior deed, it might reference a probate court order or a will, stating, "Being the same property devised to Maria Rodriguez by the Last Will and Testament of [Grandmother's Name], admitted to probate on [Date of Probate Order] in the Probate Court of [County Name] County, [State Name], Case No. [Case Number]."

  This example highlights that a derivation clause doesn't always refer to a previous purchase deed. It can point to any legal instrument or process, such as a will and probate, that legally transferred ownership to the current grantor, thereby establishing their right to sell the property.