Quitclaim deed vs. warranty deed: What’s the difference?

In any real estate transaction, a crucial piece of paperwork is the deed. This document serves as a written agreement that outlines the legal transfer of property from one party to another. It’s essential to be aware of the different types of deeds involved in a transaction. Among the most commonly used are quitclaim deeds and warranty deeds. Let’s delve into their distinctions below.

What is a Quitclaim Deed?

A quitclaim deed serves various purposes, with one of the most common being the transfer of ownership between individuals who are related, such as spouses, parents, or other family members.

Unlike a warranty deed, a quitclaim deed transfers only the legal rights to a property, if any, that the grantor (the person transferring the stake) possesses. However, it does so without any representation, warranty, or guarantee. In other words, a quitclaim deed does not provide an ironclad assurance regarding the title status, potential liens, or encumbrances of a property.

While a quitclaim deed has its limitations, it can be suitable if the grantor genuinely holds the legal rights to the property, and there are no title issues or liens. Nevertheless, if it later emerges that the seller lacked the legal right to transfer the property, the buyer has no warranty protections. This could lead to a protracted legal battle over ownership. This underscores the importance of obtaining title insurance to safeguard against potential ownership disputes.

Quitclaim Deed Uses

A quitclaim deed is typically employed in situations where there is little doubt about the ownership interest in a property. This is especially true when ownership is being transferred without an actual monetary exchange. Examples of scenarios that may necessitate a quitclaim deed include:

• Adding a name to the title, such as a spouse or child.
• Removing a name from the title, as in the case of a divorce.
• Transferring ownership to a family member, without impacting any existing mortgage.
• Transferring property interest to a business partner.
• Rectifying defects on the title, such as a misspelling or incorrect address.

What is a Warranty Deed?

In contrast, a warranty deed is typically utilized in real estate transactions involving monetary exchanges between unrelated buyers and sellers. This includes instances where a mortgage is obtained to purchase a property.

With a warranty deed, the person transferring the property’s title (the seller or grantor) guarantees that they possess a defensible ownership interest in the property. This assurance allows them to transfer their ownership interest to the buyer. Since the grantor is vouching for their ownership, a warranty deed provides greater peace of mind and reduces the potential for complications.

If a grantor of a warranty deed misrepresents their ownership of a property, they can be subject to legal action. For instance, if three siblings inherit a home from their mother and two of them decide to sell without the permission of the third, the third sibling can take legal action to regain possession of the property. In such a case, the current owners can use the warranty provided by the warranty deed to involve the other two siblings in the lawsuit.

Warranty Deed Uses

A warranty deed is the standard choice for most real estate transactions where the buyer and seller are unrelated, and there is a monetary transaction involved. This encompasses:

• Buying and selling real estate, whether through a mortgage or cash.
• Purchasing a home directly from a builder.
• Establishing clear and unencumbered ownership.

Warranty Deed vs. Quitclaim Deed: A Comparison

Quitclaim Deed:

• Used for transferring ownership without an actual sale.
• Suitable for transactions between family members.
• Does not guarantee the seller’s ownership.

Warranty Deed:

• Used for buying and selling property between unrelated parties.
• Appropriate for typical real estate transactions.
• Guarantees the seller’s ownership.

Warranty deeds offer a higher level of security when buying property, as they provide legal recourse if the seller’s ownership is misrepresented. It’s advisable to choose this option in most cases. However, it’s crucial to remember that ownership disputes can arise in various scenarios, especially within extended families. Therefore, if there is any uncertainty about ownership stakes, a warranty deed is the safer choice.

In cases where a property is being transferred to a child or placed in a revocable trust as part of an estate plan, a quitclaim deed may suffice. It facilitates the change of ownership without providing any warranties applicable to the transaction.

Conclusion

Selecting the appropriate deed hinges on the nature of the transaction and the level of protection desired. Generally, a quitclaim deed is suitable for situations involving the transfer of ownership between parties with a high degree of trust and certainty about the property’s title. However, for transactions involving financial exchanges and mortgages, a warranty deed is always recommended due to the protection it affords.