Are you considering using a quitclaim deed? It’s a fast, simple, and reasonable way to transfer home ownership. It’s a good choice in certain situations. What are those certain situations?
In contrast to warranty deeds, which are most often used in regular home sales, a quitclaim would more likely be used:
- Among family members. In this case, when the parties know the history of the property and no title insurance policy is issued, quitclaiming can be done either with or without expert help.
- In a divorce. A decree stating that one ex-spouse will keep the home doesn’t actually transfer a home. Yet transferring ownership to an ex is easily done by quitclaim.
- To clear up confusion about ownership, including name changes. Quitclaiming to clarify ownership can be achieved without expert help, but it’s often requested by a title insurer.
- In a sale of a bank-owned house. If it will be the buyer’s responsibility to make the title good, a quitclaim can be used in an REO auction.
- To place a home into an LLC. Some investor owners decide to transfer properties into an LLC. A quitclaim deed is one way to do this.
Quitclaiming is a simple, because it can transfer ownership of real estate without the need to examine current ownership or the chain of title. Historically, the quitclaim has long been the go-to method of transferring property while avoiding bureaucracy.
In that spirit, without further ado, here’s more on five top reasons homeowners decide to use quitclaim deeds.
1. Quitclaiming Property Among Family Members
Quitclaim deeds may be used for conveying property within families.
You may to quitclaim a home to a relative for a price less than the property’s market value. There’s a gift tax question to anticipate here, because gift taxes are due for any “gift” value transferred (the value not paid for). The homeowner can make untaxed gifts up to the annual exclusion (that’s up to $15,000 in 2021), but the transfer may need to be reported, so it’s a good idea to speak with your accountant if you plan to use a quitclaim this way.
Note: If you continue to live in the house, the IRS will probably not consider the any part of the value a gift.
Sometimes families quitclaim their homes into trusts. They might do this to let the home bypass probate after they pass away, or to reduce the risk of losing assets to debt collectors. It’s best to do this with a house that’s owned free and clear. Refinancing a home in a trust can get complicated.
That said, even a mortgaged home can be quickly placed into a trust by using a quitclaim from the name of the current owner(s) to the name of the trust, then recording the deed with the county. State law might direct the mortgage to be passed to the beneficiary when the home title is passed. Or, the trust language might require a home loan payoff before the title passes to the beneficiary. But the lender’s due on sale clause is not triggered when the title to residential real estate of less than five units is conveyed to a living trust, thanks to the Garn-St. Germain Act, if the mortgage borrower is a trust beneficiary and isn’t transferring the right of occupancy.
Pro tip: Alert the insurance company before making title changes so the policy can be updated if necessary.
2. Quitclaiming Property Between Co-Owners
Quitclaims are sometimes used by couples — particularly in a divorce. The court order might say who gets the house, but by itself it does not transfer the home. Yet transferring a property interest to an ex can easily be handled by quitclaiming.
Note that the mortgage is a separate matter. So, one spouse may quitclaim the property to the other, but this does not remove either spouse’s name from the mortgage and the responsibility to pay it.
If both divorcing spouses are named as co-borrowers, both are still responsible for the mortgage — even after one quitclaims their interest in the home. The only way to change this is through a lender’s agreement that the person who remains in the house may assume the loan, individually, going forward. It’s more likely that a sale or refinancing will be necessary to get the absent ex-spouse off the home’s mortgage.
Work out the mortgage funding plan with your divorce lawyer before signing a quitclaim. In this way, the legal agreement between the ex-spouses will not be a cause for major issues over the mortgage in the future.
Pro tip: Consider taxes before drafting or accepting a quitclaim. Either or both sides may be responsible for the transfer tax bill under state law. And if a sale legally occurred through the quitclaim transfer, the seller may owe capital gains tax. The question of whether homestead tax breaks are kept after the transfer should also be examined.
3. Using a Quitclaim Deed for a Name Change or Otherwise Clarify Ownership
A quitclaim can change your name on your deed. Your previous name will appear as grantor, and your new name will be the grantee (recipient) of the property interest. Once you file your quitclaim with the county clerk or recorder of deeds, title searches will bring up your new name.
Note these sensible preliminary steps to take:
- Check with your title company for Formerly Known As forms before proceeding with the quitclaim.
- Speak with your county recorder of deeds in advance to ensure that you will not need to pay transfer taxes when the title is changed.
- Call your mortgage specialist if you have a home loan and let them know a quitclaim will be filed. Be sure it won’t trigger a due on sale clause and make the whole loan come due. You need to be sure it’s clear you’re quitclaiming only to clarify ownership.
If there is some question about someone else possibly having an ownership right in a home, that person can sign a quitclaim deed to declare no interest. A title company might request this to clear up ambiguity in the chain of title. In some cases, title companies will need to pay other parties to quitclaim potential interests in a property for sale.
Then, the buyer will be able to take free and clear title. Additionally, the company can then insure the property.
4. Quitclaiming a Bank-Owned House to a New Owner
What about REO auctions? In some sales, the buyer is responsible for the title. Lenders selling foreclosed homes do not want to be sued, and may avoid making any promises about a property or its title. And there are states, such as Massachusetts and Rhode Island, in which a quitclaim is not an unusual deed for property sales. For these reasons and others, it’s possible to encounter a foreclosed home being offered through a quitclaim.
Nevertheless, before accepting a quitclaim deed for a bank-owned home, buyers should carry out due diligence and work with experienced closing agents. Because the buyer of a bank-owned home may have to use the lender’s selected title company, it also makes sense to hire a local real estate lawyer to make sure good title is conveyed.
Why do we emphasize the value of expert assistance? A quitclaim, you’ll recall, legally transfers only the grantor’s ownership interest, without further promises. Even if that’s a fraction of the whole ownership. Or none. It might seem strange to think anyone is conveying zero value to a buyer through a quitclaim, but it happens. Example: The former owner might have owed back taxes, the government might have dibs on the property, and the recipient of a quitclaim deed might receive no actual value.
5. Quitclaiming Property to an LLC
Quitclaims in most states do not declare that the grantor (the person offering the deed) has an interest in or a right to transfer the property. They don’t promise that the property is free from tax liens, mortgage liens, or other burdens that could be left as clouds on the new owner’s title.
Those assurances are integral to the warranty deed, but are usually not integral to the quitclaim. Quitclaims are used when no warranty is needed or expected. For example, a property owner needs no guarantee of ownership when transferring the title into the owner’s company.
Owners who wish to quitclaim real estate into an LLC are reminded that:
- Advice from a tax expert is helpful so the transfer avoids creating a taxable event.
- This type of transfer can nullify the owner’s title insurance.
- A lack of title guarantees could be an issue if the owner plans to sell the business one day.
Pro tip: Transferring a title to a condo or co-op? For a valid transfer, the owner must adhere to the rules of the homeowners’ association, its by-laws and restrictions.
Homeowners Have the Right to Quitclaim Their Property
☛ Learn more from Deeds.com about creating a quitclaim.
Homeowners may transfer their ownership. Sometimes the results of doing so can be more complicated than they seem at first.
All property transfers impact your legal obligations and rights. Before taking consequential action with your property or challenging a problematic title, consult with an experienced lawyer in the state, to protect your interests.
Internal Revenue Code, 26 U.S.C. § 2503 – 2507.
Internal Revenue Service Publication 1457: Annuities, Life Estates & Remainders.
12 U.S. Code § 1464 and § 1701j–3. Preemption of Due-on-Sale Prohibitions.
Photo credits: Phil Hearing, via Unsplash, and Alena Darmel, via Pexels.