Quit Claim Deeds.
Quit Claim Deeds
Sometimes misnamed a “Quit Claim Deed,” or worse, a “Quick Claim Deed,” a Quitclaim Deed, is a very useful document under certain circumstances, but has characteristics that make its use risky under many circumstances.
Most real estate investors will run into use of a quitclaim deed at least once during their investment career. It may be when buying a tax sale property or when a spouse must sign one.
Although some may think that a Deed is a Deed, such is not the case. While all types of deed documents transfer some kind of real property interest, each type of deed has one or more characteristics that are different from other types.
In review, a deed is a document that conveys real property from one party to another. A deed includes a legal description of the land and the names of the party giving up an interest (grantor) and the party receiving an interest (grantee). It also includes words that describe the interests being conveyed. While there are a variety of deed types, with some differences regarding what might be available among states, there are two basic types that are most often of interest: warranty deeds and quitclaim deeds.
A warranty deed, the most commonly used type, certifies that the grantor is the sole and rightful owner of the interest being conveyed, that there are no undisclosed liens or other claims against the property, and that the owner does not know of any defects in the title. If, in fact, it is later discovered that any of these issues were untrue, the grantee would be able to seek legal recourse against the grantor. Of course, whether or not satisfaction could be obtained against the grantor would depend on a number of possible factors, including the financial condition of the grantor and the ability of finding him/her in order to serve legal documents – hence, the importance of title insurance policies which will cover many types of such problems.
In contrast, quitclaim deeds simply convey whatever interest, if any, that the party executing the deed might have. Therefore, if the party is in fact the sole owner, there are no material undisclosed facts, and the deed is properly written, executed, notarized, and recorded, there should be no problems. Unfortunately, there are many possible ways in which that might not be the end result. Possible problems include:
- The grantor is not the sole owner of the property or even has no interest whatsoever in it and another interest holder or sole owner surfaces in the future to claim the property, resulting in legal headaches, even loss of the property.
- It later turns out that there was a lien against the property, perhaps with the amount owed even being more than the current value of the property – not improbable in the housing market of the past few years. One way that such a problem could occur is that the grantor did not pay a contractor for work recently completed and the contractor records a lien after the quitclaim deed is given, but within the legal period for filing the lien.
Depending on the facts of a particular case, the grantee may have grounds for a lawsuit against the grantor and/or may at least be able to have the grantor incarcerated if fraud is involved. However, as previously mentioned collecting on a lawsuit judgment or even being able to sustain a lawsuit is not certain if the grantor is judgment proof or cannot be found, respectively. Seeing the grantor jailed for fraud may provide some satisfaction, but (1) the grantor may not be located, (2) fraud is often difficult or impossible to prove, (3) even if there is a conviction, the sentence may be unsatisfactorily light, (4) financial redress is sometimes not provided in the sentence or may not be collectable when it is, and (5) the time and energy that the grantee must put into pursuing either civil or criminal redress will be substantial, as will the related stress.
Quitclaim deeds are often used when one spouse gives up a property interest in a divorce or when one spouse is not receiving a property interest because the other spouse is purchasing a property with separate funds and the two are agreed that the property being purchased will be the sole and separate property of the purchasing spouse. Quitclaim deeds are also sometimes used in transfers of property rights between family members when the involved parties know one another well and are familiar with the history of the property.
Sometimes one has no choice but to receive a quitclaim deed because that is the way it is done by the governmental agency conveying title. This occurs, for example, when a county sells a property because of unpaid property taxes. In this case or in any other case where you acquire title via a quitclaim deed, in order to be able to later sell the property at the market value of comparable properties, you will need to have a warranty deed. This is accomplished with the court ruling in your favor in a quiet-title lawsuit. However, unless prior to accepting the quitclaim deed you had a competent attorney perform a title search or obtained a satisfactory preliminary title report from a title insurance company, you could find yourself on the losing end of the court action and holding a worthless piece of paper.
Accordingly, although a quitclaim deed is usually risk-free when it involves the spousal transactions previously mentioned and can be relatively low-risk for a family transfer under circumstances mentioned above, buying property on a quitclaim deed is always risky and should be avoided. If a quitclaim deed is the only form of deed that a seller is willing to provide, the buyer should ask “why?” and take steps to protect himself, including all possible due diligence.
The issues discussed in this article and many other issues of importance to landlords are covered in our eCourses and/or in our Mini Training Guides.