Warranty deed--need to use an attorney?
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
The consensus seems to be that a WD is better than using a quitclaim. Is this something I need to pay an attorney to do or is it fairly straightforward and something I could do on my own to save money?
This post will be long, but there are a number of issues I want to clarify....
§1 DEED TYPES (there are more than 2 types of deed, but I am only discussing 2....)
A)
Warranty Deed - The grantor of a warranty deed warrants (guarantees) the title to the property is good: nobody else has rights in the property. If a 3rd party claims the 3rd party has a right to the property, which right has an impact on the new buyer's ownership of the property, the grantor agrees to defend the new owner against the claim of the 3rd party.
While all that is technically required is that the grantor makes a guarantee, in practice, that guarantee is in the form of an insurance policy that is purchased. The insurance company agrees to hire an attorney to defend against any 3rd party claims. The insurance company protects its butt (technical legal phrase there) by only issuing a policy if a licensed insurance agent certifies a proper title search was done and the agent determines there are no legally valid claims that can be made against the title. This is more commonly known as a "title search" or "title exam"; and, it is performed by a "title agency".
Warranty Deeds are required by lenders that are given a mortgage to secure repayment of the loan that was used to purchase the property. Many people don't realize that there are 2 types of title insurance policies: 1 only protects the lender - so as soon as the loan is paid off and the mortgage is realesed the owner cannot make a claim on the insurance policy; 1 protects the owner's title so the owner can make a claim on the insurance policy anytime anyone tries to assert interest in the property
Please Note - just like any insurance policy, there are "exclusions" or things the policy will not protect against. When the policy is issued, the exclusions will typically specify that the policy only protects up to a certain dollar value, the policy will not protect against tax liens, any existing right of way, easement, special assessments, etc.... Also, the policy will never protect against any change in the title that takes place after the policy is issued (e.g., the new owner has work done and a contractor places a mechanic's lien on the property, the new owner grants a utility easement, etc....)
B)
Quitclaim Deed - The grantor gives up any and all rights the grantor has to the property and transfers those rights, WHATEVER THOSE RIGHTS ARE, to the new owner. The grantor makes NO GUARANTEE WHATSOEVER about any rights in the property. Quitclaim deeds are most commonly used in a divorce (1 spouse transfers all rights in the property to the spouse who will keep the house), when transfering property to a living trust, transfering property between companies owned by the same person(s), or transfering property from an individual to a company owned by the individual. In these situations, the "old" owner had a warranty deed and the "new" owner has a close enough relationship with the "old" owner that the "new" owner is not worried about anyone asserting a claim since the title insurance was issued on the warranty deed (and in some instances like the living trust, the "new" owner still has the same rights to the guarantee of the warranty deed.)
§ DEED RECORDATION
Each state has its own laws about the requirements of a deed to real property. For example, in Ohio (see R.C. 5301.01):
To be valid, a DEED must be:
i) signed by the grantor;
ii) the grantor must acknowledge the signature before an official (a judge, a clerk of court, a county auditor, a county engineer, a mayor, or a notary public)
iii) the official shall certify the acknowledgement and sign a certificate of acknowledgement
Note - a properly signed (but not recorded) deed is a valid transfer of real property - HOWEVER, without recording, there is little protection against 3rd party claims against the property - (I've seen cases where people sold the same piece of land to different buyers!)
In Ohio at least, it is not required that an attorney create a deed. It is not required that an attorney file a deed. Whether a warranty deed or a quitclaim deed is used does not matter for purposes of legally transferring property. However, do something wrong and you may have unintended and/or negative consequences so I always recommend you consult a local professional to give you guidance....
Warranty deeds are simple, you do not need an attorney. Follow the steps and have the deed registered with the county.
What Stu said. A warranty or grant deed isn't any more complex than a quit claim deed. You might also be able to get blank copies online from the county recorders office that your property is located in. Not only will they be free, they'll be in the preferred format the county likes to see. Lastly, if you have any questions about filling out the deeds, call the county recorder. My experience has been they're glad to help out.
Mitch is correct stating clerks in county offices are happy to help, if they work in Los Angeles County just don't expect them to be prompt with registering the deed. In certain counties in Arkansas they do not have plat maps, seriously, the clerk will suggest you hire a surveyor.
Thanks. This is definitely not something I would want to spend money on a lawyer for if I don't have to.
Depends upon your state. In my home state of SC, I can not record a deed that was not prepared by an attorney.
Thanks, I'm going to find out what the law is in Florida. Better safe than sorry.
You don't say whether you are buying the property or selling the property.
As a general rule, the seller pays for the deed of transfer. If you are the buyer, insist on a general warranty deed.
If you are the seller, only give a general warranty deed if you have title insurance. Otherwise, give a quit claim deed or a special warranty deed. If you give a general warranty deed without having purchased title insurance, you are self-insuring.
If the buyer insists upon a warranty deed, give a special warranty deed that only declares that you did nothing to cloud title while you owned the property, but does not insure against any previously undiscovered title defects.
As a general rule, the seller pays for the deed of transfer. If you are the buyer, insist on a general warranty deed.
If you are the seller, only give a general warranty deed if you have title insurance. Otherwise, give a quit claim deed or a special warranty deed. If you give a general warranty deed without having purchased title insurance, you are self-insuring.
If the buyer insists upon a warranty deed, give a special warranty deed that only declares that you did nothing to cloud title while you owned the property, but does not insure against any previously undiscovered title defects.
Thanks--I would be transferring it from my name to my LLC. It already has a title ins. policy.
I thought that a quitclaim could void the existing title insurance and it was better to use a WD. Is that incorrect?
Hi, there is no reason to use a WD if you are conveying to YOUR LLC. You have TI in your name and any loss suffered by your LLC would flow to you anyway, your claim would be made as an individual due to the loss.
Just to be clear, never take a legal description off any plat map or other documents other than the previously filed deed, exactly as described. If you have made changes, then a survey will probably be necessary. It is common for some documents and plat maps to have abbreviated legal descriptions and not the full legal. It depends on the surveying method used for the legal, Meets and Bounds or a Block.
As Mitch mentioned you can get free blank forms, if you don't fill it in properly you can have a real mess, so ask before you begin filling in blanks.
The difference mainly with a WD is that you warrant good title, the QD only conveys that interest you MAY have in and to a property.....that could be all of it or any other interest.
I generally use a QD to transfer property from myself or family held personally to my entities or trusts and they will use a WD when it is sold later on. That's property you hold in your personal business entity, if you are going with a partnership or LLC involving other non-related parties, use a WD and obtain an Owners TI Policy, IMO.
Good luck !
I'm curious. How can a county recorder in SC tell WHO prepared the deed? Do they require a stamp or affidavit from an attorney to accompany the deed or is it basically the "Honor" system?
They must be notarized, the notary attests to the fact that the persons named in the foregoing instrument were in fact the persons exeuting the document.
Any county registry agent can probably tell you where the seller's name goes as grantor and the buyer as grantee...etc.
Where I am, the folks in the Recorder's Office have seen so many deeds filed that they can tell you what office they came from by who the notaries are....like oh, Sally Fisher again, she's at American Title
It could also be that each deed will have the name and address where the deed was made...
But for filing, it will need to be squeezed or stamped.
Good post Mitch!
I thought that a quitclaim could void the existing title insurance and it was better to use a WD. Is that incorrect?
Transfer to your LLC does break the chain of title and MAY effectively leave the property without title insurance.
If you are transferring to your LLC, then have your attorney endorse your title insurance to add the LLC as an additional insured.
Deeds have the preparer's identification in the upper left corner. Also, when the deed is delivered to the courthouse, the instructions to the recorder include a second copy of the deed with the request that the "clocked" copy be returned to the preparing attorney in the SASE provided.
You need to remember that title insurance obtained insures the policy hold against insured defects forever, it does not end when you dispose of the property, those defects prior to and during your ownership. If you LLC, closely held, has a loss it technically goes against the party it aquired the property from, which is you personally. An attorney can file suit againt the members of an LLC on behalf of the LLC.
As Dave T. pointed out, you can call and have the LLC added in many cases as a co-insured or, issue a new policy with a credit for the premium to the new date. This will be up to the agency writing the policy and the title ins. company as to what they may allow the agents to do.
IMO, talk to your TI folks and your attorney initially on how things are accomplished in your area.
The issues as I see it.
True, the title policy holder is insured in perpetuity even after title has been transferred.
One problem with transferring to an LLC is that the LLC is not named on the title policy. The LLC is not covered against loss. If a claim against the LLC is successful, the LLC would have to first pay the claim, then sue the previous owner to recover its loss.
However, if the LLC did something to cloud title, then subsequently transfers title with a warranty deed, the LLC is self-insured and has no recourse against the previous owner.
In states that allow endorsement, the cost is nominal.
This post will be long, but there are a number of issues I want to clarify....
§1 DEED TYPES (there are more than 2 types of deed, but I am only discussing 2....)
A)
Warranty Deed - The grantor of a warranty deed warrants (guarantees) the title to the property is good: nobody else has rights in the property. If a 3rd party claims the 3rd party has a right to the property, which right has an impact on the new buyer's ownership of the property, the grantor agrees to defend the new owner against the claim of the 3rd party.
While all that is technically required is that the grantor makes a guarantee, in practice, that guarantee is in the form of an insurance policy that is purchased. The insurance company agrees to hire an attorney to defend against any 3rd party claims. The insurance company protects its butt (technical legal phrase there) by only issuing a policy if a licensed insurance agent certifies a proper title search was done and the agent determines there are no legally valid claims that can be made against the title. This is more commonly known as a "title search" or "title exam"; and, it is performed by a "title agency".
Warranty Deeds are required by lenders that are given a mortgage to secure repayment of the loan that was used to purchase the property. Many people don't realize that there are 2 types of title insurance policies: 1 only protects the lender - so as soon as the loan is paid off and the mortgage is realesed the owner cannot make a claim on the insurance policy; 1 protects the owner's title so the owner can make a claim on the insurance policy anytime anyone tries to assert interest in the property
Please Note - just like any insurance policy, there are "exclusions" or things the policy will not protect against. When the policy is issued, the exclusions will typically specify that the policy only protects up to a certain dollar value, the policy will not protect against tax liens, any existing right of way, easement, special assessments, etc.... Also, the policy will never protect against any change in the title that takes place after the policy is issued (e.g., the new owner has work done and a contractor places a mechanic's lien on the property, the new owner grants a utility easement, etc....)
B)
Quitclaim Deed - The grantor gives up any and all rights the grantor has to the property and transfers those rights, WHATEVER THOSE RIGHTS ARE, to the new owner. The grantor makes NO GUARANTEE WHATSOEVER about any rights in the property. Quitclaim deeds are most commonly used in a divorce (1 spouse transfers all rights in the property to the spouse who will keep the house), when transfering property to a living trust, transfering property between companies owned by the same person(s), or transfering property from an individual to a company owned by the individual. In these situations, the "old" owner had a warranty deed and the "new" owner has a close enough relationship with the "old" owner that the "new" owner is not worried about anyone asserting a claim since the title insurance was issued on the warranty deed (and in some instances like the living trust, the "new" owner still has the same rights to the guarantee of the warranty deed.)
§ DEED RECORDATION
Each state has its own laws about the requirements of a deed to real property. For example, in Ohio (see R.C. 5301.01):
To be valid, a DEED must be:
i) signed by the grantor;
ii) the grantor must acknowledge the signature before an official (a judge, a clerk of court, a county auditor, a county engineer, a mayor, or a notary public)
iii) the official shall certify the acknowledgement and sign a certificate of acknowledgement
Note - a properly signed (but not recorded) deed is a valid transfer of real property - HOWEVER, without recording, there is little protection against 3rd party claims against the property - (I've seen cases where people sold the same piece of land to different buyers!)
In Ohio at least, it is not required that an attorney create a deed. It is not required that an attorney file a deed. Whether a warranty deed or a quitclaim deed is used does not matter for purposes of legally transferring property. However, do something wrong and you may have unintended and/or negative consequences so I always recommend you consult a local professional to give you guidance....
Thanks, but I'm a little bit confused by this--wouldn't the previous owner be me in this situation? (I am talking about deeding a property that I bought in my own name from a bank a couple of years ago into an LLC that I formed)
Keith B., thanks for that informative post.
Yes, exactly. If you give your LLC a warranty deed, and don't buy title insurance, and then you lost control of the LLC in a lawsuit, the LLC would sue you personally if there was a defect in the deed. If you lost that suit, you could turn around and sue the person who gave you the deed, which really means you would file a claim on the title insurance that person bought for you.
Depending on the terms of the title insurance policy. If the policy was only issued to protect the lender who financed your purchase of the property (assuming this is how you bought it) then you are not covered by the policy - only the lender is while the lender has a mortgage on the property.
^ It is an owner's policy.
It was mentioned earlier that I need to pay an attorney for an endorsement of the title policy to keep it valid if I transfer the property from my name to the LLC at some point in the future. I don't understand how an attorney that I hire can do something like that--doesn't the insurance carrier that issued the owner's policy have the last word on an entity being added to the title policy? And can't I just go directly to the insurer to have this done rather than going through an attorney?
I can think of 2 possible reasons for an attorney to review: 1) in some states (e.g., VA) a transfer of property must be handled by an attorney - I don't know if that applies for all transfers or only certain types; and, 2) there is such a thing called "title opinion" or "title opinion letter" drafted by an attorney giving a legal opinion on the status of who legally owns the property, whether there are any potential claims on the property etc.... As far as I know, title opinions are not used very frequently anymore for general purposes. They are used more frequently with regards to ascertaining mineral rights. They are also more frequently used by lenders to assess the risk to the lender in issuing a loan secured by the property. Maybe it was recommended you get a title opinion letter since you want to transfer the property from you as an individual to a business entity?
Absolutely!
Great post on TI issues Keith!
After a policy is issued it covers those title issues up to that date, if the insured (owner of the property) does something that causes a lien or defect in title to arise, any loss arising out of such actions are not covered anyway.
When you sell the property, title will be searched again, basically from the date you bought it forward (could well go back further)with new coverage being issued. As Keith mentioned.
Jon is right on, in reality, they sue your LLC and it could file hours after to sue you, then the defense may kick in with the title policy as it is a potential loss, if you can defend it, then you should have no problem having your LLC defend it as well.....unless your LLC did something to cloud title.
I'm trying to think of an instance where your LLC could cloud title in some way that would not be covered by a new policy to a buyer....like making a deed and not filing it and having that deed surface later on...however it is not effective until filed, most policies in Section II B exclusions will exclude defects in area as to what a proper survey would show...so if you built something and it was over a property line, your policy won't cover that loss to your neighbor.....
It's early and I have not had my coffee yet, can't think of an issue.
Also I first advise anyone to check with a title company agent as to proper coverage and a local attorney, if the insured interests are not identical from your policy to you and to the interests held in the LLC you could have problems, no other persons were in my LLCs and my title agent/attorney would cover me in such matters, your area or TI folks may not, so check.
As to a title opinion, it's basically a search without coverage and is what I asked for in making a loan, it's also a preliminary search, showing clear title prior to closing before I go to all that work of making a loan. If there was an issue I would simply instruct the closing agent to insure over it if they would or cure the matter by any filings necessary. Many issues involved a QC deed made arising out of a divorce, improperly made or not filed for example.
But doing this for yourself doesn't make sence to me, but you certainly can do it....
I called my title insurance co. They said the title insurance policy would be void if I transfer the property from my name into my LLC (regardless or whether I use a quitclaim or warranty deed). I suppose this means I need to just leave it in my name until it is sold (to a real buyer) rather than transfer it to the entity?
That depends -
In random order I see 3 main options:
1)
How comfortable are you the title to this property is good? If you have no doubts title is good, you could decide to forgoe the title insurance policy - BUT you would have to be willing to accept the consequences of paying to defend title should anyone make a claim against the title.
2)
Transfer the property to your LLC and purchase a title insurance policy. You won't have to pay all the typical closing costs because you don't need all the typical title agency services. All you need is title insurance - however, to issue a policy the title agency will at a minimum have to do a title search. They will probably require that you also have them draft and file the warranty deed - so you will have to pay the fees for those things as well.
3)
Leave everything status quo.