I wrote and posted this some years back. It seems to me that it’s time to post it again, this time for those who improperly learned what a “quitclaim deed” is and its proper use.
I have come to believe that many real estate agents, title company officials, loan officers and even attorneys have an insufficient understanding of an instrument known as a "quitclaim deed." And that is dangerous.
In fact, many know so little about it that they don't know that to divide the word into two is incorrect.
The word is properly spelled "quitclaim."
A quitclaim deed isn't a deed at all.
It's an instrument of estoppal.
Its purpose is to get a recordable instrument from a person to keep that person from later claiming an ownership interest in a specific real property.
It is not proper for it to be used for the purpose of transferring ownership from one party to another, although that is frequently the primary intent of those who use it.
The quitclaim deed is the product of English Common Law, upon which most civil law in the U.S. is based. Common law systems place great weight on court decisions. Court decisions are considered "law" just as are statutes. Louisiana is the one state in the US thats legal system has no Common Law basis but is based on French law instead. So law in Louisiana cannot be made in the courtroom by judicial opinion.
The problem with attempts to use the quitclaim deed…
For purposes other than it is intended is that it fails to meet the five traditional tests of a deed.
Here are the tests...
The biggest areas of failure in quitclaim deeds are 1) the grantor makes no claim of ownership 2) the grantor is not required to divulge any outstanding liens or other title clouds or deficiencies against the property.
Grantees want to believe that the quitclaim deed infers that the grantor owns the property outright and with pure title, and that the grantor is transferring it to him, whether as a gift or by purchase.
But the facts that are indisputable are that the grantee in a quitclaim deed receives no better title than what the grantor possessed, and the grantor doesn't claim or warrant to the grantee and the world that he possesses any ownership.
That is the very ominous reason this form of conveyance should be limited to estoppal purposes.
Let me give you an example of a situation that is the perfect use of the quitclaim deed. As your college graduation present, your mom and dad gave you a small office building that is leased to an orthodontist. Five years later, you marry. Now we have a posing question. Does your husband now or will he have any ownership interest in the building solely as a result of marrying you?
This problem can be resolved by your husband executing a quitclaim deed whereby he disclaims any interest in the property that you own. It is recorded for public record, and that solves that issue in perpetuity.
For purposes other than estoppal, a grant deed or warranty deed are the only proper methods of transferring part or total ownership.
A recent question was posed by a young man whose grandmother was planning to give him a few acres of her land as a wedding present, so that he and his new wife would be able to build their home there.
He asked the Active Rain community what she needed to do. He said her property was free and clear of any loans.
I took exception to her doing this by quitclaim deed.
Here is my answer for you to ponder.
The most dangerous things in real estate are lose ends. If the real estate world learns nothing else, that is the major lesson. Always try to anticipate what lose ends could crop up, and fix them before they can.
In this case, I feel the quitclaim deed is improper. There are three things he's got to consider. First and foremost, he's got to be sure his grandmother owns the property outright and that there are no liens against it. She says there aren't, but what if Aunt Joan somehow ended up with a 5% interest and everyone's forgotten about it? That would be a title cloud.
The only way he's going to find that out is to get a title search done by a title company or have it abstracted by a title attorney.
Secondly, he's got to be sure that when she deeds him that certain piece of her property that it is properly defined/described. The only way to close that barn door is to have a registered surveyor map and describe it.
And thirdly, he's got to be sure that the instrument she uses to deed him that interest is a) forever and b) unbreakable and c) has her solemn swear (warranty) that she has clear title to the land that's she's deeding to him.
That's the main reason a Quitclaim Deed is inappropriate, in my opinion. It does none of that. It doesn't even infer any of that.
If this isn't properly handled, when he gets ready to build on that tract, and he goes to a lender to borrow the money, if the transfer from his grandmother to him has title problems, he isn't going to be able to get the loan until they are cleared up.
Now let's project further. What if he doesn't get around to building something on the tract until after his grandmother has passed away or maybe by then she's mentally incompetent? How is anyone going to straighten out a mess then without spending untold bucks at the courthouse? All of that could have been addressed and cured at the time the gift was being made to him by deed.
This transaction, like most, needs to be handled in the conventional way for conveyance. First and foremost, the title needs to be abstracted, and there is no better place for that to happen, in my opinion, than with a state licensed title insurance company.
Once any exceptions are cleared that can be, a general warranty deed needs to be prepared, and it needs to recite any and all easements, restrictions, mineral right leases, recorded liens, and the like, in the deed that are following the ownership interest to the grandson.
Now when Grandma deeds that property to her grandson, it will be done in a tidy package, as it should be.
So in conclusion, circumventing the use of a real estate attorney and an abstract attorney or title company to convey property is a very dangerous approach. One that should be avoided.
A good place to start is to never buy legal instrument forms from stationery stores, and never try to buy stationery store products from a law office.
Meanwhile, how's your wealth building nest egg coming along? If your answer is, "Not so good," best you call me today.
William S. Cherry & No Company
America’s Financial Management Coach