Owning real estate investments can be a benefit to you and your partners. However, your liability can increase if tenants or others are harmed on your property and blame you. If the injured party files a lawsuit against you, your personal assets could be at risk. Forming a limited liability company (LLC) can protect you if the LLC is the legal owner of your property. Using a quitclaim deed will achieve the transfer in ownership between you and your company.
Quitclaim deeds are used to transfer property from one or more persons or entities to others. It gives your ownership in a property to someone else. It does not guarantee that you have a claim in it; but if you do, you are releasing it to the new party. It also does not give a warranty that the property is clear of any liens or other encumbrances, nor does it change the name on your mortgage or release you from the responsibility to continue to make payments.
An LLC is a business entity filed with your secretary of state that protects its owners, called members, from personal liability for company debts or claims. Members can be individuals or entities, and there is no limit to the number allowed. Profit and losses pass through the company to the owners, who report them on their tax returns. In order to take advantage of the limited liability protection of an LLC, your personal and business transactions should be kept separate. When real estate is held by your LLC, then claims resulting from your liability of ownership cannot attach to your personal assets, only those owned by that particular LLC.
Simply forming an LLC does not protect you from liability as a result of your ownership in investment real estate. The property title must contain the name of your company. Therefore, you and any other owner, need to complete a quitclaim deed yourselves or through an attorney to transfer the property to your LLC. Jurisdictions may use different forms, but, in general, your quitclaim deed will contain the names of all owners as the grantors and the name of your LLC as the grantee, including a legal description of the property. The owners releasing their interest to the LLC will sign the deed and have it notarized and filed with the city or county recorder's office.
Transferring the name on a title with a quitclaim deed is a permanent transaction unless you can prove that fraud or duress were involved. Normally, it cannot be taken back or undone without another quitclaim deed being completed and filed. Ask your accountant about any tax implications to the transfer and to the formation of the LLC itself. Since your liability is limited to what is owned by the LLC, consider forming one for each property that you own. This is important when you hold title on commercial properties, such as apartments and office buildings, and there is a high volume of people on the premises. In addition to the benefits of your LLC, buy an umbrella liability policy as an added layer of protection against claims of negligence or other fault.
- Nolo: Deeds FAQ
- LegalZoom: LLCs Education Center
- Quitclaim Deed: Quit Claim Deed
- MortgageFit; Quitclaim Deed: Document Transferring Property-Interest; Jessica Bennet
- HG.org. "Contracts 101—Warranty vs Quitclaim Deeds." Accessed Aug. 12, 2020.
- Realtor.com. "When Do You Need to Get a Quitclaim Deed?' Accessed Aug. 12, 2020.
- DivorceNet. "Interspousal Transfers Versus Quit Claim Deeds." Accessed Aug. 12, 2020.
- California State Board of Equalization. "Property Ownership and Deed Recording," Page 7. Accessed Aug. 13, 2020.
Carol Deeb has been an editor and writer since 1988. Her work has appeared in magazines, newspapers and online publications, as well as a book on education. Deeb is a real-estate investor and business owner with professional experience in human resources. She holds a Bachelor of Arts in English from San Diego State University.