What are quitclaim deeds?
Quitclaim deeds offer the lowest level of buyer protection. They convey whatever interest the grantor has in the property at the time the deed is executed.
Grantors "remise, release, and quitclaim" their interest in the property without making promises about the quality of the title. That means there's no guarantee the grantor actually owns the property or that they have the right to transfer it. Without warranties, the grantee has little recourse if there's a problem with the title.
When do you use a quitclaim deed?
Quitclaim deeds are a fast and easy way to transfer property without doing a title search or buying title insurance. They're commonly used when the property is transferred outside traditional sales channels.
Because they lack any warranties, quitclaim deeds are best for low-risk transactions, including those that don't involve the exchange of money. They're often used to transfer title between family members. They can also be used after marriage to add a new spouse to the title or after divorce to remove one of the parties from the title.
There are other situations where a quitclaim deed may be used to transfer title, including:
Removing title defects
Another use of quitclaim deeds is to remove title defects or "clouds." A cloud is any claim, unreleased lien, or encumbrance that puts a title into question. A cloud can also be due to:
- an issue with the wording on a document (e.g., it doesn't comply with state requirements),
- a missing signature, or
- an incorrectly recorded real estate document.
Clouds are usually found during a title search. Lenders typically require a title search (and title insurance) to protect against any claims from third parties. If a cloud is found, it's resolved through a quitclaim deed.
How do quitclaim deeds affect mortgages?
There isn't usually an exchange of money with quitclaim deeds. And without any money, it would be difficult for the grantor to pay off a mortgage. Therefore, most properties transferred by quitclaim deeds don't have an outstanding mortgage.
Still, it's possible for a grantor to have a mortgage and file a quitclaim deed. In these cases, the grantor remains legally responsible for the mortgage, even after ownership is transferred to the grantee. A quitclaim deed transfers ownership, but it doesn't have anything to do with debts or claims on the property.
Things can get tricky if the mortgage has a due-on-sale clause. This provision requires the full payment of the mortgage if the property is sold or transferred.
Say the grantor thinks the grantee will make the mortgage payments, but the grantee doesn't pay. Or the grantee sells the property to someone else. With a quitclaim deed, the grantor has no recourse. If this happens, the original grantor could be in legal trouble with the lender.
To avoid problems, the grantee can either assume the loan or refinance it and pay off the original mortgage.
Quitclaim deeds can be a fast way to transfer property, but they do have limitations. When in doubt, consult an experienced real estate attorney before making any decisions.