Deeds are legal documents that transfer ownership of real property (homes, land, immovable buildings) from one person to another. Deeds fall into two categories. The simplest type of deed is a quitclaim deed, drawn up to convey, or transfer, ownership from the seller to the buyer without any assurances. The other type of deed is a warranty deed, in which the seller guarantees that he owns the share of the property he claims to own and has the right to sell it.
In real estate transactions with strangers, you should steer clear of quitclaim deeds.
Why? Because anyone can say they own, say, 25% of a building without actually owning a single brick. Or the grantor might truly own the place but not have the right to sell because someone else is contesting the title. With a quitclaim deed, the grantor won't be held responsible if there are complications with the title that prevent it from transferring as the deed describes. In fact, the grantor of a quitclaim deed can know full well about complications beforehand and still use a quitclaim deed, eager to pass the complications onto someone else.
That's a brief rundown of why quitclaim deeds aren't the way to buy a house or land, but why do such deeds exist if they're ripe for misuse? Let's delve into the sensible uses of quitclaim deeds and the protections you get when you insist on another kind of deed.
Quitclaim Deed Defined
With a quitclaim deed, the grantor promises to hand over to the recipient any claim he might have on a property. Emphasis: might. Anyone can draw up a quitclaim deed, no proof of ownership necessary. Because of the risks, quitclaim deeds are usually used to convey ownership of property between people who trust each other.Get Free Quotes
A quitclaim deed entitles the recipient to whatever interest the grantor has in the property, whether it's 1% ownership or 100%. For example, when a couple is divorcing, one spouse can sign a quitclaim deed to relinquish ownership (literally "quit his claim") of 50% of the house they once shared.
Of course, if the grantor doesn't actually own the property, a quitclaim deed isn't worth the paper it's printed on.
Quitclaim deed templates are easy to find online, often customized by state. All anyone has to do is fill in the required fields. Therefore, the professional look of a quitclaim deed is no indicator of its value. "I could sign a quitclaim deed granting you all of my interest in the Statue of Liberty, and all you would have would be a piece of paper," jokes real estate broker Jay H. Link.
If you're a seller, the convenience of a quitclaim deed is understandably appealing, but if you're the buyer, you should insist on a warranty deed in the absence of absolute trust. "Quitclaim deeds do have a legitimate purpose, but they’re far trickier and riskier than other forms of deeds," warns Realtor Donald Tepper of Virginia. Quitclaim deeds are a favorite of scammers.
When You Might Use a Quitclaim Deed
The number one reason you might use a quitclaim deed is "when you don't know what you're doing," says former law school professor Alice Baker. It's the easiest choice; a child could probably fill out the form. "When you don’t want to go to the expense of guaranteeing to the buyer that you have the legal right to sell the property to them," you might use a quitclaim deed.
"Transferring property by means of a quitclaim deed places a cloud on the title and makes it difficult to resell the property at a later date. For that reason, quitclaim deeds are rarely used in arms-length commercial transactions," says Baker.
As a buyer, if you knew that a quitclaim deed is like buying a used car as-is, you'd ask for a warranty deed instead. Buying something from a person who doesn't want to prove to you that he even has the right to sell it would be taking a huge risk.
In a trusting relationship, however, a quitclaim deed is a hassle-free way to transfer title, which is why it's often used by parents to transfer property to a son or daughter, especially if the house is a gift. After all, you would buy a used car from your father.
People sometimes use quitclaim deeds to transfer real estate to their own living trust, in which case the grantor and the recipient are the same person. Divorcing spouses will use quitclaim deeds to record that one spouse is giving the home to the other. These are examples of situations when choosing a quitclaim deed over other types of deeds saves time and allows other administrative and legal processes to continue quickly. All parties know one another, and nobody is trying to scam anyone.
In his experience as a real estate broker, Jay H. Link has mostly seen quitclaim deeds used when a married couple wants to sell property but only one spouse's name is on the title. "The most common use of quit claim deeds is when a married couple is selling a property where only one spouse is listed on the title. If they have made mortgage payments or paid for maintenance items or taxes out of a joint checking account, the spouse not on the title could have a claim against the equity. The closing attorney or title agent will have the spouse not on the title sign a quitclaim deed relinquishing any claim they have against the title."
Warranty Deeds vs. a Quitclaim Deed
As stated, deeds can either be quitclaim deeds or warranty deeds. The former comes with no guarantees, while the latter protects the buyer from unknown complications, misrepresentation, and outright fraud.
- Warranty Deed. Grantor promises there are no title defects. Mainly, he guarantees that he has title to the property, he has the legal right to sell the property, there are no encumbrances against the property, and nobody else has a lawful claim of title. Sometimes called a general warranty deed to differentiate it from the special type.
- Special Warranty Deed. Grantor guarantees that he, personally, didn’t create any title defects, but doesn’t promise anything about what prior owners might have done.
- Quitclaim Deed. Grantor doesn’t promise anything at all, and the buyer takes a gamble. Grantor conveys whatever interest he has in the property but makes zero promises about what that interest is.
"It’s obvious why quitclaim deeds might be popular with sellers," says Baker, the former law professor. "The fewer guarantees the seller has to make, the happier the seller is. What is less obvious is why quitclaim deeds would be popular with buyers—or, more precisely, why any buyer in their right might would agree to a transaction involving a quitclaim deed at all."
Mortgages and Quitclaim Deeds
"It’s important to note quitclaim deeds do not directly affect a mortgage," the Chase bank blog explains. "The mortgage is a separate document that the guarantor continues to be responsible for after granting the property to someone else, unless they’ve paid off their mortgage or there is a legal transfer of the mortgage to the grantee."
Key Takeaways About Quitclaim Deeds
- A quitclaim deed transfers one person's ownership interest to another, but with no verification of that ownership or that the title is clear.
- Be wary of a stranger who wants to sell you property with a quitclaim deed.
- Using a quitclaim deed could place a cloud over the title, making the property harder to resell.
- Outside of family relationships or procedures overseen by a lawyer, opt for a warranty deed over a quitclaim deed.