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When you buy, sell or transfer ownership of a property to someone else, pay attention to the paperwork, especially the type of deed. Two of the most widely used deeds in real estate are quitclaim deeds and warranty deeds.
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 transferring the stake — has, but without any representation, warranty or guarantee. In other words, a quitclaim deed makes no ironclad promise about the title status of a property, or any liens against it or encumbrances.
Why is a quitclaim deed important?
A quitclaim deed has its limits, but it can still work just as well if the grantor truly has the legal rights to a property and there are no liens or other title issues.
Quitclaim deed uses
Quitclaim deeds are used in safer situations when 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 (LLC) or trust they also control, or giving ownership of the property to a family member.
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, such as adding your spouse or child
- Removing a name from the title, such as after a divorce or for any other reason
- Transferring ownership to a family member, such as a child, parent or sibling; since a quitclaim deed does not have any effect on the mortgage, it’s easy to transfer ownership to another person without burdening them with a loan
- Transferring property interest to a business partner
- Amending defects on the title, from a misspelling to a wrong address
What is a warranty deed?
When you buy a home with the help of 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 uses
- Buying and selling real estate, whether the transaction involves a mortgage or cash
- Establishing free and clear ownership
Warranty deed vs. quitclaim deed
Warranty deeds are the safer option when buying property versus simply transferring ownership. As a seller, you should expect most buyers to request this option. If it is found out that you did not have complete ownership of the property, the buyer can sue for a breach of warranty.
Keep in mind: There are many scenarios when 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 might be anything but, so you might want to use a warranty deed any time 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 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.
When it comes to quitclaim versus warranty deeds, the type of deed you should use depends on the type of transaction and your desired level of protection. Generally, 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, always use a warranty deed because of the protection it offers.