When you buy, sell or transfer ownership of a property to someone else, you should pay attention to the paperwork. This includes knowing what type of deed a property has and what type of deed to use when you transfer your interest in a property to another person.
Two of the most widely used deeds in real estate are quitclaim deeds and warranty deeds. The distinction between them can be confusing but must be clearly understood before the transfer of a property, since it can decide the future of the ownership.
What is a quitclaim deed?
A quitclaim deed is commonly used to convey ownership between people who are related — spouses, ex-spouses, or other family members. This type of deed transfers the legal rights to a property, if any exist, that the grantor — the person who is transferring a stake in a property to another person — has, but without any representation, warranty or guarantee.
A quitclaim deed makes no ironclad promise about guarantee of the title status of a property, any liens against it or any encumbrances.
Why is a quitclaim deed important?
A quitclaim deed has its limits, but it is still a document that can work just as well if the grantor truly has the legal rights to a property and there are no liens or problems to be aware of. Quitclaim deeds are used in safer situations where there is little question about the ownership interest in a property.
For example, quitclaim deeds are often used when someone is transferring ownership interest of a property they own to a limited liability company or trust they also control, or giving ownership of the property to a family member.
Quitclaim deed uses
Many situations call for a quitclaim deed, especially if it only concerns the transfer of ownership without any real estate transaction. Some of these instances may be:
- Adding a name to the title: If you wish to add your spouse or your child or any other person to the title of the property, a quitclaim deed is the easy way to do this.
- Removing a name from the title: Whether after a divorce or for any other reason you wish to remove a name from the property title, a quitclaim deed is again the easiest solution.
- Transferring ownership to a family member: If you wish to transfer the property to a child, a parent, a sibling or any other member of your family, a quitclaim deed will help you make it possible. Since a quitclaim deed does not have any effect on the mortgage, it is easy to transfer ownership to another person without burdening them with a loan.
- Transferring property interest to a business partner: Having your business partner’s name on your property title could be useful in some cases. A quitclaim deed offers a quick and easy process to accomplish this.
- Amending defects on the title: Any error on the property title — from a misspelling to a wrong address — can be easily rectified with a quitclaim deed. This will not affect your mortgage details.
What is a warranty deed?
When you buy a home through a Realtor or from a builder, you will most likely get a warranty deed. This type of deed is used in more complex real estate situations involving monetary transactions between unrelated buyers and sellers, including getting a mortgage to buy a home.
With a warranty deed, the person transferring title of a property (the seller) is guaranteeing that they have a defensible ownership interest in the property and can therefore transfer their ownership interest to the other party (the buyer).
Since the seller or “grantor” is guaranteeing their ownership, the warranty deed provides more peace of mind and less room for trouble.
Why is a warranty deed important?
If the grantor of a warranty deed misrepresents the ownership they promised in a property that made the transfer viable, they can be sued. For instance, if three siblings inherit a home from their mother, and two of them decide to sell the property without the permission of the third party, the latter can sue to get back possession of the property. In this case, the current owners would be allowed to use the warranty they received under the warranty deed to bring in the other siblings to the lawsuit, since a few of the siblings sold the property without the permission of all involved parties.
With a quitclaim deed, however, the buyer of the property would have no such protection. Instead, they would be left to defend themselves and their ownership of the property, most likely in a lengthy court battle. This underscores the importance of purchasing owner’s title insurance in case the ownership of the property is disputed.
Warranty deed vs. quitclaim deed
Warranty deeds are the safer option when you are buying a property. As a seller, you should also expect most buyers to request this option. Buyers want you to sign a warranty deed because they want to ensure that you own the property. If it is found out that the seller did not have complete ownership of the property, the buyer can sue for a breach of warranty.
Also keep in mind that there are many scenarios where this can happen, including when transfers of real estate are taking place within a family — and especially an extended family. Even scenarios that seem inherently safe may be anything but, so you may want to use a warranty deed in any scenario where you are not entirely sure of you or someone else’s ownership stake in any property.
If you are transferring the property to your child or your revocable trust agreement as part of an estate plan, then that is a scenario where a quitclaim deed could do the trick. It accomplishes the change of ownership, but you are not providing any warranty that applies to the transaction.
Similarities between warranty deeds and quitclaim deeds
Both types of legal documents transfer ownership of property. Warranty deeds and quitclaim deeds are binding documents that are filed with the local clerk of courts.
The level of legal protection offered by quitclaim deeds and warranty deeds have a wide difference. A quitclaim deed suffices for transferring ownership to people you know and trust. But a warranty deed is the right document for most property transfers.
The bottom line
The type of deed to use depends on the kind of transaction and the level of protection sought. A quitclaim deed is ideal for situations involving only transfer of ownership between parties that explicitly trust one another and have no doubts about the title of the property. For real estate deals involving financial transactions and mortgages, one must always use a warranty deed because of the protection it offers. Since every situation could be different, it is up to you to decide what kind of protection you seek and which deed could cover you the best.