Many homeowners deal with title companies and insurance in some form or fashion during home buying. It’s not uncommon for people to transfer their real estate with a quitclaim deed.
Quitclaim deeds don’t provide the usual warranty of title. They do not include any guarantee of ownership or that the property is free from liens and encumbrances.
While quitclaim deeds can help transfer property ownership, real estate investors must understand how they will affect their title insurance policy. Using a Quit Claim Deed to transfer property into a trust, living will, or corporation can make the owner of the record in the property ineligible for future claims under their current title insurance policy.
Quitclaim deed title insurance provides an effective way to transfer a property title quickly and with minimal legal fees. They can also be used to gift property to family members and give the grantor tax benefits.
However, a Quitclaim Deed does not guarantee that the property is free of liens and encumbrances. Therefore, if the property is later sold, the new owners could face financial liability from unpaid mortgages and other debts that may remain in effect against the property, even after the grantor has transferred the property with a Quitclaim Deed. This is why most property buyers prefer title insurance over-relying on the financial status of the previous property owner.
Liens and Encumbrances
While it may be tempting to save time using a quitclaim deed, this conveyancing method does not guarantee that the property is free of liens or encumbrances. This can cause significant problems when reselling the property because future title companies will want to verify that you own the property and that it is free of liens and encumbrances.
Quitclaim deeds do not affect a mortgage; a separate document must be recorded. For example, suppose Bill transfers the property to his LLC via a quitclaim deed. In that case, his LLC has no warranty from him regarding the property’s mortgage and is still responsible for the debt on the property.
Quitclaim deeds are typically used in safer non-sale situations, such as transferring ownership between family members, adding or removing spouses from the property title after marriage, clarifying the ownership of an inherited property, or moving property into (or out of) a living trust. However, a warranty deed should be used in all real estate transactions involving monetary transactions and financing.
Transfers of Ownership
Quitclaim deeds are rarely used during real estate sales because they need to provide a warranty statement. Without a warranty statement, new owners assume all liability for problems with the title during the previous ownership. In addition, if a problem with the title arises, the new owner may face significant financial loss. This is a primary reason why it is advisable to use a warranty deed in any transfer of property.
Quitclaim deeds transfer property to trusted parties, like family members or business partners. However, consulting with a New York real estate attorney before executing a quitclaim deed is essential to ensure that the transfer complies with state law and mortgage requirements. For example, many mortgage lenders require that a deed be recorded to change the mortgage mortgage’s name and ensure that the current grantor is responsible for the loan balance.
Many investors and individuals use quitclaim deeds to transfer property titles into entities for liability protection. In addition, people often use them to avoid probate—the court-supervised process of distributing an individual’s assets after death.
While these are legitimate uses of quitclaim deeds, it’s essential to understand that they don’t guarantee the real estate is free of issues. That’s why they must be used with a warranty deed—which provides some protection to the grantee.
Without a warranty deed, if a property is transferred via a quitclaim deed, the new owner assumes responsibility for mortgages and liens recorded against the title. That can create a significant financial burden if the problem is discovered down the line. By contrast, a warranty deed guarantees that the seller has ownership rights and the property is free of issues. It also requires a complete title search and a real estate title insurance policy.