One of the most common incorrect assumptions in real estate is that someone can be added to a deed. If one person owns a piece of real estate and wants to bring on another owner, this means that the current owner would give up their interest in the property to themselves and the other person. Both people would acquire their interest in the property at the same time in the chain of title. The chain of title in real estate has been established so that an interest in real estate cannot be valued by the amount of time an owner has been in possession of the real estate.
Using a quitclaim deed is often the simplest method of bringing on another owner. The current owner – the person giving away their rights to the property – would be the grantor in the quitclaim deed. The current owner would also be one of the grantees, the persons receiving the grantor’s rights to the property. The new person acquiring an interest in the property would also be a grantee.
Understanding Quitclaim Deeds: A quitclaim deed is a legal instrument used to transfer interest in real property. The grantor (current owner) releases their ownership rights to the grantee (new owner). Unlike warranty deeds, quitclaim deeds do not guarantee that the grantor holds clear title to the property; they simply convey whatever interest the grantor has, if any.
Joint Ownership Types: When adding someone to a deed, it’s crucial to understand the type of joint ownership being established. Common forms include:
- Tenancy in Common: Each owner has a distinct, divisible interest in the property, which can be transferred independently.
- Joint Tenancy with Right of Survivorship: Owners have equal shares, and upon the death of one owner, their interest automatically passes to the surviving owner(s).
- Tenancy by the Entirety: Similar to joint tenancy but typically used by married couples and may offer additional protections against creditors.
Tax Implications: Adding someone to a deed can have tax consequences. For instance, if the new co-owner is not a spouse, the transfer might be considered a taxable event for gift tax purposes. It’s advisable to consult a tax professional to understand these implications.
Impact on Title Insurance: As you mentioned, title insurance is a key consideration. The original policy might not extend to the new co-owner, potentially leaving them unprotected against title issues. It’s important to contact the title insurance company to update the policy or obtain a new one.
Mortgage Considerations: Mortgages often have a “due on sale” clause, which could be triggered by a change in ownership. This clause requires the mortgage to be paid in full upon the transfer of the property. If the property has a mortgage, the lender’s approval might be necessary before adding someone to the deed.
Legal and Financial Advice: It’s crucial to seek legal and financial advice before making such changes. Real estate laws vary by state and country, and a lawyer can provide guidance specific to your situation.
Recording the Quitclaim Deed: After the quitclaim deed is executed, it should be recorded with the local county recorder’s office. This public recording formalizes the change in ownership and updates the chain of title.
Consideration for the Transfer: While quitclaim deeds often do not involve a direct exchange of money, some jurisdictions require a nominal consideration to be stated in the deed for it to be valid.
In summary, while using a quitclaim deed to add someone to a property deed is common and relatively straightforward, it involves various legal, tax, and financial considerations. Understanding the implications and seeking appropriate professional advice is critical to ensure that the rights and interests of all parties are properly protected.