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When to Transfer Property
with a Quitclaim Deed

Is a Quitclaim Right for You?

In some countries, property and other assets are informally held. But without a deed, a house or a piece of land is simply an asset that's used by an individual, rather than capital that's recognized by legal and financial systems.

For land or a building to serve as collateral for a loan, the legal and banking systems need proof that an individual owns an interest in the asset. The proof comes in the form of a quitclaim deed or warranty deed, each of which exists to confirm the existence of property and a person's ownership interest in it. Also, the deed provides a ready means to transfer that interest to another.

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Quitclaim Deed versus a Warranty Deed

Both a quitclaim and warranty deed can effectively transfer an interest in a property, should it exist, from one entity or individual to another. Simultaneously, a warranty deed serves as notice that no property liens exist, whether by a mortgage lender, the IRS or another creditor. But a quitclaim deed makes no such guarantee.

In addition, in the case of a warranty deed, a buyer is assured that a seller owns a lawful interest in a property and that he has the right to sell that interest. In contrast, the quitclaim deed transfers to the grantee a grantor's zero to 100 percent interest in a property.

In other words, a warranty deed affirms a grantor's actual and lawful interest in a specific property as well as the party's right to sell that interest to another. The quitclaim deed confirms only that a grantor agrees to transfer his interest in in real property, should the grantor actually have an interest in the property.

Quitclaims and Mortgages

Because of this, quitclaim deeds are usually not utilized when property has an outstanding mortgage. To be sure, it can be difficult to pay off a mortgage without proceeds from the sale of the property.

In cases where a quitclaim is used where a mortgage exists, the grantor is still liable for the mortgage even after the ownership has been transferred: thus, the mortgage remains unaffected by the quitclaim deed.

Significantly, if the grantor quitclaims property believing the grantee will continue making mortgage payments but fails to do so or sells the property to another party after the deed is executed, the grantor has no legal recourse.

In such instances, to mitigate possible financial and legal problems, the grantee can take on the mortgage with the lender's approval, or refinance the property to pay off the initial loan. In a handful of cases, it's feasible to transfer an interest in real property using a quitclaim deed. The quitclaim deed, however, conveys no warranty of clear title and no guarantee or assurance that a property is free of encumbrances.

For this reason, quitclaim deeds are often the better option for low-risk transactions between individuals who are familiar with one another and usually there is no exchange of money.

If a jurisdiction does not accept a quitclaim deed for a certain purpose or if buyer protection is needed in terms of the status of a property title, a warranty deed may the better choice.

What exactly is a Quitclaim Deed?

As previously stated, quitclaim deed transfers a zero to 100 percent interest in a property – land, house or another type of real estate -- from a grantor to a grantee. If the grantor holds a 50 percent interest, the grantee may acquire up to a 50 percent interest in the property from the grantor and no more. Likewise, a grantor can sign a quitclaim deed to transfer his interest in a property even if no such interest exists.

In effect, a quitclaim deed transfers property from one party to another in lieu of a sale.

For instance, a parent may use a quitclaim deed to transfer a home to a child. Alternatively, a newlywed may rely on a quitclaim deed to add his spouse's name to a property's title. Likewise, a divorcee may use the document to remove her name from a title.

Then again, a quitclaim is effective in transferring a property to a living trust. And, should a possibility exist that an individual has an ownership right to a certain property, a buyer might ask the person to sign a quitclaim deed to ensure she acquires a complete title.

The manner in which the aforementioned cases are handled varies by jurisdiction, so it's important to rely on professionals well versed in deeds, grantor and grantee responsibilities as well as the processes needed to transfer an interest in real property from one party to another. Only then can you be sure that the legal requirements associated with a quitclaim deed are met so the document will be binding.

If you need to transfer your property to a family member, call New American Funding and we can help.

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