Quit Deed or Warranty Deed (2 questions) - timing and differences

2 Replies

Hello.

I have 2 questions actually.  Give situation then go from there.

I have a house I am going to be renting out. Currently it is in my name still and everything. I am wanting to make sure I provide myself enough protection. So saw that you can put the property into an LLC by either doing a quit deed or a warranty deed.

question 1: What is the difference? I've seen threads and some basic discussions, but still not 100% sure what there is between the 2 (warranty and quit deed). which do i want to do at the end of the day to be most successful with this property when transferring it into the LLC?

Question 2:

does this need to be done before I have someone sign the lease and move into the house? or can it be done while they are already in there.

thanks!

A Quit Claim Deed - is a deed which carries the least amount of warranty and guarantee (sum of zero) to the title of the real property from one party to the next.  A QCD will grant to the Grantee (receiving party) what ever interest (claim) is held by the Grantor (giving party).  

A Warranty Deed - is a deed which carries the highest amount of warranty and guarantee from the Grantor to the Grantee.  Essentially, the Grantor (giving party) agrees to defend all claims that arise which attempt to challenge the Grantee (receiving party) ownership from deed event back in time.  

What sometimes comes up in layman conversations is one deed is "better" than the other.  This is not untrue, but it is limited in it's statement in the sense that in some cases, a warranty & guaranty may not be needed, so looking to the function of the transfer is important.  

Situations where title is being transferred amongst family members for instance, many times only need to amount to the transfer of the interests and not include the warranty and guarantee.   That is not to say in contrast, that complete strangers do not convey interests with little or no warranty or guarantee, since they do, it just means the Grantee in such cases should realize they must defend title on their own and no warranty is being made that a claim exists.

It is important to note, "protection" for a property owner will reside mostly with the insurance policy held for the property and not with the limitation of liability created from the LLC. In addition, some states do not allow single owner LLCs.

There is no requirement for you to transfer title from one entity to the next prior to renting the property to a tenant.  The rental agreement flows with the property unless it is very awkwardly written.

All this said, any form of deed will in general work for you per se.  Sine you are you and you own the LLC, you are comfortable (or should be) with the lineage of ownership and the potential of claims that may arise.  Hopefully being zero.  

However, if you hold title insurance on the property, a Quit Claim Deed transfer may invalidate the title policy.  In that case, you can always simply get an updated policy to reflect the new ownership.  If the policy does not allow the transfer and you do not update the policy, then the Grantee (receiving party) would have to defend the title on their own if any claims arise from the past.  

In general, there is no real cost difference amongst the creation and perfection (recording) of the deeds.  So, under that idea, it is sort of a make sense decision to transfer with Warranty Deed for your purpose.  Likely the best bet, is contact a Title Company or Title Attorney to prepare the transaction for you so you ensure it is done correctly.  It is also not a bad idea to bounce it off your CPA or attorney setting up you LLC to ensure that the contribution of the LLC are properly setup.  Details always matter in real estate.

If the property finance the lender could do a due on sale clause when you try to hide it behind an LLC. Get a good insurance policy if you want protection.


Joe Gore.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you