A few weeks ago I wrote a post on real estate titles and deeds. I wanted to follow up on that post with a bit more detail on a couple of widely used deed types. I know, this can seem like this is simple stuff, but in reality it can be a bit complex. It can be especially complex to the newbies out there who are perhaps hearing these terms for the first time.
First, let’s look again at exactly what a deed is. A deed is a conveyance of real estate. It is signed by a grantor (typically a seller) and is the instrument that commonly transfers the title to real estate from one person to another. A deed is how one “sells” real estate.
There are two common types of deeds that are used between what are often referred to as “normal” buyers and sellers. Those two types are warranty deeds and quitclaim deeds. While both of these documents are deeds, what they convey and how they convey it are quite different and every real estate investor should understand that difference.
There are of course other types of deeds such as tax deeds, special warranty deeds, etc. But these are usually used in special situations between “non-normal buyers” such as when a bank forecloses on a property. I will cover those in another post.
A warranty deed is a deed in which the grantor warrants that they have a good, clear and marketable title. You can think of this type of deed just as you would with any other product in which you get a warranty. The maker or seller of the product provides you with a warranty that their product will work. If the product does not, they will somehow fix the problem. The situation is very similar for a warranty deed. The seller believes the title is good and clear. They believe that they own the title and can transfer it to you.
Warranty deeds are perhaps the best deeds a seller can receive and it is what I demand from a seller before I purchase any property. However, warranty deed or no, I always suggest a buyer get a good and thorough title search done prior to purchase just to be safe.
A quitclaim deed is a type of deed that simply conveys any and all interest in a particular property. It is different from a warranty deed in that it does not warrant anything, it just transfers. These deeds can be quite legitimate but have also been abused. If you see a quit claim deed on a chain of title, it should raise your eyebrows a bit and extra caution should be used. Remember, the seller using this deed is not warranting anything. They are merely transferring any and all interest in a property.
Quitclaim deeds are fine for many situations, such as when a husband and wife are transferring their interest into an estate planning tool like a revocable trust. But they can be used as an avenue for fraud. For example, I can quitclaim to any of you any and all interest I have in the Empire State Building. Do you now own the Empire State Building? No. You own only my interest, and guess how much interest I had. Caution is needed therefore because people have used quitclaim deeds to lure unsuspecting buyers into paying for properties that the “seller” does not own. I even understand that in some parts of the country, many recorded quitclaim deeds are suspect.
Just be careful when your see or are offered a quitclaim deed. Many falsely think that warranty and quitclaim deeds are of equal value. They are not. A warranty deed is the way to go.
Ever had a bad experience with a quitclaim deed? Share it in the comments.
Photo Credit: jety