Real estate can only be transferred by deed, but no law prescribes the type of deed a seller must use. Whether he chooses to convey his house by quitclaim, general warranty deed or deed of gift depends on the seller's unique circumstances, the identity of the grantee, the nature of the transaction, and whether the grantee is paying for the home.
A quitclaim is the simplest form of property transfer deed. It identifies the seller (grantor), the buyer (grantee) and the property. It states that the grantor quits his interest in the property. It contains words of conveyance and makes provision for the payment of a price, but has no further material terms. A quitclaim deed has full effect as soon as it is delivered in accordance with state law. Typically, legal delivery requires the grantor to sign the deed before a notary public. Some jurisdictions require the additional counter signature of an independent witness.
A quitclaim deed transfers property immediately. A willing seller can draft, sign, notarize and record a quitclaim in an afternoon. It is a useful tool for clearing away clouds on title, when it is not clear whether someone holds a residual interest in the home. It is also useful in situations where the grantee needs to stop the grantor from staking any further claim to the house, for example, after divorce proceedings.
Quitclaims give no title protection. A grantee acquiring property by quitclaim receives no warranty that the grantor has clear title to the property, or even that the grantor owns the title. For this reason, buyers for value rarely accept title by quitclaim. Mortgage lenders typically mandate the use of a general warranty deed to transfer real estate secured as collateral for their loan, which guarantees that the grantor's title is free from liens and encumbrances. Generally speaking, a quitclaim is appropriate in scenarios where the grantee knows the property, such as estate planning transfers between family members or co-owners. Quitclaims can be used to transfer property for a price. However, their lack of title warranty recommends them to transactions for no, or low, consideration.
Buyers typically conduct a title search before purchasing a home. Title searches disclose encumbrances, liens and other clouds against the seller's title. Some buyers and most mortgage lenders also insist that the buyer purchases title insurance, which protects the buyer and his lender against loss associated with a title defect. Altogether a buyer for value and his lender have three layers of protection: a title search, title insurance and the seller's title warranty in the transfer deed. However, title insurance is not available when a quitclaim is used to transfer property. Worse, any existing policy is voided. Without a title search and grantor's title warranty, the insurer's risk is simply too high.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.