Four Reasons A Quit Claim Deed Should Be Avoided

Posted by WILMOTH Group on August 19, 2016

Is a quit claim deed the proof of ownership you possess for a property?  Far too many investors come to us with properties to manage and their proof of ownership is a quit-claim deed.  Acquiring or transferring ownership in a property and not obtaining a full warranty deed may come back to haunt you.  A quit claim deed only transfers ownership and does not provide any assurance that the seller (Grantor) will fix any title problems that arise.  Quit claim deeds offer the least protection to the buyer (or Grantee).

Any property you convey should have a warranty. Warranty deed’s provide protections that Quit Claim deeds do not.

Four Protections Provided In A General Warranty Deed

  • A warranty to the purchaser that they have a legal right to convey the property in a sale
  • A warranty that the property is free of liens or encumbrances unless otherwise stated
  • Protection from any third parties who try to establish their rights to the title of the property
  • The Grantor covenants they will do anything necessary to support the Buyer if any claims arise. An example would be to provide evidence of a lien release.

An extra benefit of purchasing with a full general warranty deed is that the protections extend back further than just the Grantor’s ownership.  Each Grantor of a warranty deed is liable for issues related to the title that arise before and through their ownership period.  With a Quit Claim deed, this chain of responsibility is broken.

Special Warranty Deeds

Special warranty deeds are used to convey most bank owned properties.  In these deeds the Grantor warrants the property was not encumbered ONLY during their period of ownership.  So, the long-term chain of protection is also broken with these deeds.  Unfortunately,  institutional or corporate owners do not convey properties acquired in a foreclosure any other way.

How Many Investors End Up With A Quit Claim Deed

Many investors are provided a general warranty deed when acquiring a property. It is common shortly after acquisition to convey the property to a different investor-owned entity (for example an LLC).  This action is taken mostly to avoid personal liability issues.  In these cases the transfer is usually effected using a quit claim deed.   Unfortunately, these transactions are likely losing many protections provided with the general warranty deed originally received when purchasing the property.

Understanding you are trying to expedite a sale and maybe save some money-here is some advice.   Don’t do it.  Purchase and transfer properties within your ownership entities with a general warranty deed.  Insist on receiving title insurance when purchasing a property.  Then take care to maintain these four unique protections.

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WILMOTH Group is headquartered in Indianapolis, Indiana and Fort Myers, Florida. We focus on providing creative local solutions for a variety of residential real estate needs including, properties for sale, property management services in Indianapolis, and short-term management services in Tampa and Fort Myers.