What Happens When the Wrong Type of Deed Is Used?

DeedWhen a property is bought, sold or transferred, part of the paperwork is the deed. What type of deed a property has and what type of deed is used when one person transfers their interest in a property to another person is important, says Bankrate in the article “Quitclaim vs. warranty deed: What you need to know.”

What is a quitclaim deed? A quitclaim deed is a kind of deed that transfers the actual legal rights to a property, if any exist, that the grantor—the person transferring their ownership in a property—has, with no representation, warranty, or guarantee. In other words, this kind of deed gives no guarantee of the title status of a property. It also doesn’t give any guarantee of whether there are any liens against it or if there are any other encumbrances. You only get what the grantor may have. There is nothing more.

If the grantor truly has the legal right to the property and there are no liens or other problems, then the quitclaim deed works fine. For the most part, quitclaim deeds are used then there’s no question about the ownership interest in a property. For instance, this is often used if a person is transferring ownership of a property they own to a limited liability company or, in the case of estate planning, into a trust that they also control.

That also holds true for transactions within the family if a couple is getting married and the property-owning spouse wants to add the spouse to the deed. In a divorce, one spouse can also quitclaim their interest to the other spouse.

What about a warranty deed? This kind of deed is used in more complex situations, including when a person is getting a mortgage to purchase a home. In this case, the person transferring title of the property (the seller) is guaranteeing that they have a defensible ownership in the property and has the legal power to transfer their ownership interest to the buyer. The seller is guaranteeing the validity of the ownership.

If the grantor of a warranty deed misrepresents their ownership, they can be sued. Here’s why this matters, especially in estate planning.

Let’s say a few siblings inherit their mother’s house. They don’t need the house and decide to sell it.  However, one of the siblings didn’t really want to sell the house and decides after everyone has agreed otherwise, that they want to keep the house. The sibling sues to get possession of the home. The other siblings could use the warranty they received under the warranty deed to bring in the other siblings to the lawsuit.

The warranty deed protects the people who purchased the home, since some of the siblings sold the property without permission of all the siblings.

If there had been a quitclaim deed, the buyer of the property would be left to defend themselves in a court proceeding.

Warranty deeds are the safer option, when purchasing a property. In estate planning, buyers of an inherited home should purchase a home, only where there is a warranty deed. Even in family transactions where things seem to be fine, a warranty deed will be better for the buyer.

An estate planning attorney can be a key source when it comes to passing property from one generation to another and helping a sale of an inherited property go smoothly.

Reference: Bankrate (Sep. 4, 2019) “Quitclaim vs. warranty deed: What you need to know”

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