When you buy, sell or transfer ownership of a property to someone else, you’ll want to 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. Keep reading to learn about these two types of deeds and how they work — and what’s at stake if you choose the wrong one.
What is a quitclaim deed?
A quitclaim deed is a type of deed that transfers the actual 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 without any representation, warranty or guarantee.
In other words, a quitclaim deed gives no guarantee of the title status of a property, any liens against it or any encumbrances.
“Basically, in simple terms, it means you get only what a grantor may have and nothing more. And if the grantor has nothing, you get nothing,” says Mark Hakim, a real estate attorney with Schwartz Sladkus Reich Greenberg Atlas LLP in New York City.
Why is it important?
A quitclaim deed may work just fine if the grantor truly has the legal rights to a property and there are no liens or problems to be aware of. For the most part, quitclaim deeds are used in safer situations where there’s little question about the ownership interest in a property, says Paul Sian, a licensed attorney in Ohio and Michigan who is also a licensed real estate agent. 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.
Sian also says that quitclaim deeds can be used when someone is transferring ownership of real estate to family members. For instance, maybe a couple is getting married and one spouse wants to add the other to the deed as a result.
In the event of divorce, one spouse can quitclaim their interest in the property to the other spouse as well, he says.
What is a warranty deed?
A warranty deed is a type of deed that is generally used in more complex situations, including when someone is 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), Sian says.
Since the seller or “grantor” is guaranteeing their ownership, the warranty deed provides more peace of mind and less room for trouble.
Why is it 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.
Sian gives the following example of how this could work in a situation that may seem “safe.”
Let’s say a few siblings inherit a home from their mother. They don’t need the house and they decide to sell it. However, one of the siblings didn’t sign off on the sale and decides they want to keep the house after the fact. That sibling sues to get possession of the home back, but “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,” Sian says
In this case, the warranty protects the people who bought the home since some of the siblings sold the property without the permission of all siblings involved.
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.
What are the key differences between a quitclaim and warranty deed?
Warranty deeds are the safer option when you’re buying a property. As a seller, you should also expect most buyers to request this option.
Patrick Simasko, who works as an estate planning and elder law attorney at Simasko Law in Mount Clemens, Michigan, says buyers want to be sure you own the property, so they want you to sign a warranty deed.
“If it later comes out that you don’t own the property, the buyer can sue you for a breach of the warranty,” he says.
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’re 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’s 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.
The bottom line, says Simasko, is that “all real estate transactions that are arm’s length transactions use warranty deeds.”
It’s up to you to know and understand what kind of transaction you really need and how much protection you want.