Top 3 Reasons Why You Shouldn’t Use A Quitclaim Deed To Transfer Title

Photo Credit: Unknown

Photo Credit: Unknown

Let’s take a moment to address the differences between a Quitclaim Deed and a (Special) Warranty Deed. There are several points to consider when choosing the correct deed to use for a title transfer. When you look at the differences between the deeds and scenarios for which each is best suited, you might reconsider using that Quitclaim Deed to transfer title.

Quitclaim Deeds: Why They Stink.

A Quitclaim Deed (often mistakenly referred to as a “quick claim” deed) is a popular instrument for title transfers. However, when choosing a deed its popularity should not be a determining factor! Many different deeds will convey title to real property, each will be useful for different situations. One of the most important things to keep in mind when choosing a Quitclaim Deed is that it doesn’t even say whether or not the person conveying title owns the property! The grantor offers no “guarantees” as to their ownership interest in the property or the condition of the title, which brings us to reason number 3…

Reason Number 3:  NO GUARANTEES.

Although a quitclaim deed does convey title, doesn’t make any other guarantees, warranties or assurances. Basically a quitclaim deed says this:

“I don’t promise that this property has a clean title, or even that I own it at all! Whatever interest I may have in the property I’m giving to you. If you find out later you don’t have a marketable title, you can’t sue me! I didn’t promise you anything! Bwahahahaha!!!”

Okay, maybe that’s a bit dramatic… but you get the point! Many bloggers and “experts” (sometimes even real estate attorneys or a divorce court) might advise you to use a quitclaim deed. Lots of people have used them to transfer property into or out of a trusts, limited liability companies, between husbands, wives and family members “because you don’t necessarily need such strong guarantees in that situation”. Well that may be true, but it’s certainly not the only thing to think about.

Reason Number 2:  THE “SUBJECT TO” SUBJECT.

You might think that a you have to use a quitclaim deed because the property isn’t “free and clear” from liensNot so! This is probably one of the more common misconceptions we’ve heard regarding quitclaim deeds (and Warranty Deeds). The argument goes something like this:

“Well I can’t use a Grant Deed, Warranty Deed or a Special Warranty Deed because those documents say the property is free from liens… I have a mortgage on the property so I have to use a quitclaim deed!”

Well, that’s almost true. Warranty Deeds and Special Warranty Deeds do contain verbiage that makes some sort of guarantee as to the condition of the titleWhat they actually say, however, is that all existing claims have been disclosed. Warranty Deeds do not say the property is “free and clear”.  You see, each deed has a section that contains “subject to” verbiage. In the “subject to” section of the deed, certain elements are called out as being part of the transfer. A typical example of “subject to” language is as follows:

“SUBJECT TO: Current taxes and other assessments, reservations in patents and all easements, rights of way, encumbrances, liens, covenants, conditions, restrictions, obligations, and liabilities as may appear of record.”

This is significant because any liens that are recorded in the public record are “part of the package”. The grantee has no legal recourse to go back to the grantor because of a lien on the property he didn’t know about, so long as it was properly recorded (and therefore disclosed). When you purchase a title insurance policy, the title company will do a title search and list everything they find on the “Schedule B” section of the title commitment.

Reason Number 1:  TITLE COMPANIES HATE ‘EM.

Many title examiners will not accept a prior conveyance made by quitclaim without additional documentation signed by grantor. Remember, a quitclaim doesn’t guarantee anything! So when a title officer sees a quitclaim deed in the chain of title, they may question whether or not the grantor in the quitclaim deed had something to hide. Imagine how difficult it would be to track down an ex-spouse or trustee of a trust (who’s probably out of the country or deceased) so they can sign off on this property, again… just clear up the chain of title because the title officer doesn’t like the quitclaim deed. Now this is holding up the escrow! People want to move in and unpack! People want their money! If you don’t have anything to hide, why not use a stronger document? Here’s a good one that you can use in almost every state: The Special Warranty Deed.

Want to know when quitclaim deeds are supposed to be used? Check out this article!

Deeds


Deed

Which deed is right for me?

Well, that depends!  Over time our legal system has developed many types of deeds, each with its own particular manner of conveying (or affirming) rights, title or interest in property… usually real estate. The term “deed” comes from an ancient ritual called livery of seisin, wherein the grantor would perform an act (deed) of physically handing over a handful of dirt (or perhaps something else that actually came from the property being conveyed), making a recital and thereby transferring ownership of the land. In modern times, this isn’t all too different than handing over the keys at the closing table!

Conveyance Deeds

Photo Credit: Stock.X.Chang

Photo Credit: Stock.X.Change

Different states allow for different instruments, but here’s a list of the most common deeds you’ll see:

Quitclaim Deed

Most people will see this list and think, “Oh a quitclaim deed! That’s the one I want!” Or maybe you heard it was called a “quick claim” deed. No matter what you call it, a quitclaim deed isn’t always the best deed to convey title… and here’s why:

A quitclaim deed doesn’t make any guarantees as to the ownership interest of the grantor (the person conveying title). In essence a the grantor named in a quitclaim deed says this to the grantee:

“As far as I’m concerned, you can have this property.  I’m not making any guarantees about it though… in fact, I’m not even saying I own it! All I’m saying is that if I do have an interest in this property I’m giving it to you.  Just don’t come back to me later when you find out the title isn’t clean and marketable. Don’t sue me later! I said no promises!

Now don’t get all bent out of shape if you see received property with a quitclaim deed. You still own whatever interest the grantor had… but when you think about what a quitclaim really says, it doesn’t seem very assuring!

When used ideally, this deed is clears up a “cloud” on title. Let’s say, for example, John Singleton lives in a community property state like and “forgot” to disclose were married when they acquired title to property. Their spouse would then have an interest, and a quitclaim deed would be the perfect instrument to clean things up for the record.

Warranty Deed

A title company will usually ask you to sign a Warranty Deed. There’s a reason for this, and it may not be as altruistic as you think!

With a Warranty Deed, the grantor guarantees the title is free from defects for his period of ownership and every previous owner as well! We don’t know about you, but we’re not usually in the habit of guaranteeing things that we didn’t do. That brings us to the…

Special Warranty Deed

A Special Warranty Deed is sort of like the Warranty Deed, but it doesn’t extend its guarantees to every previous owner. It just says, “I’m giving you a clean title. I promise. I’m not saying the previous owners didn’t do anything to mess it up, but I didn’t!”

Most savvy investors will ask their escrow officer to use a Special Warranty Deed. That usually satisfies everyone. It’s also what we suggest if you don’t know what to use… most states will accept it provided it’s executed properly and according to state law.

Grant Deed

Grant Deeds are popular in California, and are similar to Special Warranty Deeds. They make a couple of guarantees to the grantee, namely:

  1. The property has not been previously conveyed someone else
  2. The property is free from encumbrances, besides the ones already disclosed to the grantee

Beneficiary Deed

Beneficiary Deeds, also referred to as Ladybird Deeds, Transfer on Death Deeds, etc. are used to convey title after the owner dies. They are an estate planning tool, and aren’t available everywhere. Although they are gaining in popularity, the following states allow for some version of Transfer upon death deeds:

  • Arizona
  • Arkansas
  • Colorado
  • District of Columbia
  • Hawaii
  • Illinois
  • Indiana
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • Nevada
  • New Mexico
  • North Dakota
  • Ohio
  • Oklahoma
  • Oregon
  • Virginia
  • Wisconsin

This list is constantly growing, so check back every once in a while for updates!

Gift Deed

This deed is used when no money is accepted for the conveyance, and the “gift” must be reported as such on your tax return. Consult your accountant for more info.

Disclaimer Deed

In community property states, your spouse automatically has an interest in any property you acquire! That means they will be on title with you, even if they aren’t named as a grantee, unless they “disclaim” their interest. If they execute a disclaimer deed, you can acquire title as your “sole and separate property”.