Quitclaim deeds are used to transfer property between two parties without promising a clear title. Warranty deeds ensure that there are no liens on the property, guaranteeing the new owner that there will be no conflict with ownership rights.
What is a Quitclaim Deed?
A quitclaim deed is a legal document that transfers real property without providing any guaranteed protection to the new owner (also known as a “grantee”). Real estate transactions that use a quitclaim deed make no promise of a clear title when ownership passes from the original owner (or “grantor”) to the grantee.
A clear title is free from any issues that could impose problems with property value or ownership. Examples of problems that could arise without a clear title include:
- Liens
- Encumbrances
- Boundary line disputes
- Confusion about who has legal ownership rights.
However, many grantees who use a quitclaim deed buy title insurance to combat these issues. Title insurance is used to cover any unexpected expenses and debts that come with a title transfer.
When To Use a Quitclaim Deed
Quitclaim deeds are mainly used to transfer property between family members, close friends, or when there is little to no monetary amount involved. These parties tend to trust each other more and worry less about title issues.
Examples of common situations where quitclaim deeds are used include:
- Removing a spouse while in divorce proceedings
- Adding a spouse to the family cabin after marriage
- Inheriting property from the will of a loved one
- Transferring the property to a living trust
Quitclaim deeds are used in these situations because they provide a quicker transaction. They are straightforward and easy to understand, providing a viable alternative to warranty deeds in property transfers with little perceived risk.
Advantages of a Quitclaim Deed
Quitclaim deeds have advantages to both grantees and grantors for several reasons:
- Efficiency. There is no requirement or need to use a real estate agent or attorney.
- Easy internal transfers. Property transfers from a living trust of a loved one can go straight to their beneficiaries and skip the probate process.
- Simple. Quitclaim deed forms and processes are easy to read and understand in most jurisdictions compared to other deeds.
- Legally binding. Despite its simplicity, quitclaim deeds provide legal proof of ownership.
Disadvantages of a Quitclaim Deed
Some risks to be aware of when using a quitclaim deed include:
- No guarantees to the new owner. There are no promises that the title of the property is free from defects.
- No proof of ownership. No guarantee of a clear title means no guarantee the grantor has the right to sell or transfer the property.
- Difficulty with lenders. Mortgage lenders tend to not support loans on a property with a quitclaim deed due to lack of assurance.
What is a Warranty Deed?
A warranty deed is a legally binding document that provides the guarantee of a clear title when purchasing real property with a mortgage.
Due to large sums of money usually involved in these types of real estate transactions, clear titles guarantee no risk of any debts or legal problems.
If any problems occur from a warranty deed, the grantee has full protection and the ability to sue the grantor for any debts and attorney’s fees that result from legal action.
There are two main types of warranty deeds:
- General warranty deed. This is provided to the grantee at closing which guarantees that the complete history of the title is free from defects, debts, liens, or other problems.
- Special warranty deed. Only protects from problems with the title from the grantor and not from any previous owners.
When to Use a Warranty Deed
Warranty deeds are used in most real estate transactions as they provide the most protection. The use of a warranty deed also allows the grantee to secure a loan.
Many mortgage companies will not lend on a property without a warranty deed due to the increased risk. Examples of formal arrangements include buying or selling real estate involving a mortgage or purchasing directly from a builder.
Advantages of a Warranty Deed
There are a few advantages of using a warranty deed over a quitclaim deed:
- Guarantees clean title. There are no concerns over any defects or debts with the title of the property.
- Buyer protections. The grantor is responsible for any issues and remedies surrounding the title.
- Provides evidence of ownership. Title searches are included in the warranty deed to check that the grantor is legally able to transfer ownership rights to the buyer.
- Cheaper. There are usually no added costs such as title fees, escrow fees, or attorneys’ fees.
Disadvantages of a Warranty Deed
Here are the most common cons associated with using a warranty deed:
- Not all offer the same protections. General warranty deeds and special warranty deeds are different in what they guarantee and protect the grantee from.
- Longer process. Due to added measures of doing a title check and setting up a mortgage, the process of transferring property is longer than a quitclaim deed.
- Additional costs. Extra fees may include transfer taxes, title fees, escrow fees, and attorney’s fees.
