3 Reasons To Fear the Quitclaim Deed
Title to real property is conveyed by a deed. A real estate deed is a written and signed legal instrument that transfers the ownership of real property from one owner to another. The “Grantor” on a deed is the “seller” or current title holder of the property, the “Grantee” on a deed is the buyer, or person to whom title is being transferred.
In Florida, there are three basic types of deeds, each of which conveys a different level of protection for the buyer. “Quitclaim deeds”, “Warranty deeds” and “specialized deeds”. Warranty deeds provide the highest level of buyer protection, while quitclaim deeds provide the least. Because quitclaim deeds offer such limited buyer protection, it's important to understand exactly what you're getting when you take title via a quitclaim deed. Here, five things to watch:
1. No Guarantees
The overwhelming problem with quitclaim deeds is there are no guarantees by the seller. In other words, the buyer is receiving virtually no assurances the seller is delivering good clear title to the property. Furthermore, quitclaim deeds only transfer the ownership rights held by the seller. Why is this important? Since a quitclaim deed only transfers the rights owned by the seller, in a perfectly legal transaction, a seller could conceivably “sell” the Brooklyn Bridge a buyer via quitclaim deed. In this instance, the buyer would receive nothing because the seller holds no interest in the bridge. For this reason, quitclaim deeds are seldom used in real estate transactions where money is changing hands.
2. Limited Uses
The main instances where a quitclaim deed might be appropriate is when there is a transfer property with no money involved, such as from a parent to an adult child, between siblings or when a property owner gets married and wants to add his or her spouse to the title. Quitclaim deeds are therefore most commonly used when the parties know each other, and are more willing to accept the lack of buyer protection. However, it cannot be stressed strongly enough that even where a quitclaim deed might be appropriate, the quitclaim still must be prepared and executed correctly. For instance, one of the many issues with quitclaim deeds occurs when a parent who holds as trustee, conveys the property to an adult child via quitclaim deed. If the quitclaim deed does not clearly specify the property is being transferred by the parent individually, and as trustee of the trust, there will almost assuredly be title problems down the line when the child goes to sell the property.
The other appropriate use of quitclaim deeds is to cure title defects, such as a name that has been misspelled in a prior deed.
3. Never used when a mortgage is involved
Since quitclaim deeds are almost never used where money is changing hands, they are never used when a mortgage is involved. Lenders require complete assurance and guarantees that buyer holds good and clear title to the property in question, thus lenders always require warranty deeds. Furthermore, many people do not recognize that they cannot remove themselves from a mortgage simply by executing quitclaim deed. In most instances, lenders will not agree to remove anyone from a mortgage without payment in full. In addition, most mortgages contain clauses prohibiting such transfers thus by executing a quitclaim deed you subject yourself and your “buyer” to a potential foreclosure action.
The Bottom Line
Quitclaim deeds are not the be all and end all, but they do have a legitimate purpose. They provide a valid and legal means of conveyance that can convey title as effectively as a warranty deed if and only if, the grantor has good title. However, quitclaim deeds have also been called “the problem children of the real estate world” for the problems they cause unsuspecting buyers. Regardless of whether you are taking title under a quitclaim deed or warranty deed, the truth is that no real estate transaction is simple. In order to protect yourself and the person receiving title, when using a quitclaim deed you should always consult with the real estate lawyer to guide you through the issues involved. As a general rule, the cost of assuring your transaction is done properly is very minimal compared the cost which the buyer will incur to rectify a title problem created by a bad quitclaim deed.