When transferring real estate, there are different types of deeds that can be used. Following is a brief discussion of three types of deeds that are commonly used and why they might be considered.

Quitclaim Deeds

When someone wants to transfer whatever property rights they have in a parcel of property, they can use a quitclaim deed. The quitclaim deed states that whatever rights in the property that the person making the transfer has are being transferred. The transferor is quitting his or her claims to the property. When an individual drafts and signs a quitclaim deed, they are, in effect, making a statement that whatever they own regarding the property described in the deed is now transferred to the transferee.

The transferor signing a quitclaim deed is not promising or guaranteeing that they have any rights in the property. If they do own the property, it is effectively transferred using the quitclaim deed after it has been recorded with the local recording authority. But if it turns out that the transferor did not, in fact, own the property, the transferee cannot bring a claim against the transferor unless they can prove that the transferor knowingly intended to defraud the transferee. However, if the transferor thought they owned the property but in fact did not own it because of some problem with the title, the transferee would have no ability to make the transferor legally liable for the error.

Quitclaim deeds are commonly used in transactions among family members or in cases where the transferee is not concerned about verifying or enforcing the transferor’s claim to title. A subsequent buyer could purchase title insurance to cover any past defects in the title when they take the property.

General Warranty Deeds

Another frequently used option is a general warranty deed. The transferor can use this type of deed to assure the transferee that he or she has clear title, and that the property is free from any encumbrances such as a mortgage or lien. By signing the warranty deed, the transferor is promising that they will be liable to the transferee for any costs associated with such mistakes.

Most transferees in an arms-length purchase will require that the deed transferring the property to them be a general warranty deed. Without such warranties by the transferor, the real estate transaction is much riskier for the transferee.

Special Warranty Deeds

A special warranty deed is similar to a general warranty deed, but makes the warranties of no liens or encumbrances or title defects only for the period of time that the transferor owned the property. The transferor makes no warranties that there are no title defects that arose before the transferor took possession or title to the property. A special warranty deed provides some additional protection for the transferee over a quitclaim deed, but it is not nearly as protective as a general warranty deed.

A special warranty deed may be considered when the transferor is acting as a trustee or personal representative. They make no promises as to the absence of title defects that may have arisen before they were acting as fiduciary, but promise that no defects arose during the time that they were acting.

The Bottom Line

When determining which kind of deed to use or accept you must consider a few things. Is there the need to provide or receive a guarantee that no liens, encumbrances, or other title defects exist on the property? If the parties are closely related and both sides are confident, a quitclaim deed may be appropriate, particularly if the parties intend the property to remain in a trust or business entity for a very long time and there is little concern about a sale or transfer of the property to a third party who will require warranties about the title.

However, in general, the safest course of action for both transferor and transferee in any real estate transaction is to use a general warranty deed accompanied by an in-force title insurance policy that covers the transferee for any title defects that may have occurred before—or during—the transferor’s ownership.

We can assist you if you are considering giving or receiving a deed, whether the transfer involves a third party or a transfer to your trust or other entity. Schedule a consultation today!