If you are thinking of acquiring property or you are receiving property from a family member, you might be wondering, ‘what is a quitclaim deed?’ A quitclaim deed is a type of deed that transfers property to another person. In the hierarchy of deeds, it is the deed that provides the least amount of protection. A quitclaim deed transfers the owner’s entire interest over the property but does not guarantee the owner’s title over the property. In case the owner is subsequently declared by the court not to be the owner of the property, the buyer has no recourse against the owner-seller because what was executed was a quitclaim deed.
For this reason, a quitclaim deed is generally used only in special circumstances, such as transfers between family members, transfers to a trust, transfers without consideration, and transfers to correct defects in title. Rarely is a quitclaim deed used for real estate transactions where a buyer pays a substantial amount of money, because in this case, a buyer would like to be protected with warranties and covenants in case the seller does not have any title to the property or there is a defect in the title of the property.
For example, John and Jennifer are married and would like to divorce. Together, they own one apartment in Manhattan and a house in Brooklyn. In the divorce settlement, they agreed that John would keep the apartment in Manhattan while Jennifer would keep the house in Brooklyn. To transfer their interest in these properties to each other, Jennifer would execute a quitclaim deed over the Manhattan apartment to John, and John would execute a quitclaim deed over the Brooklyn house to Jennifer.
Supposing instead that John and Jennifer, married, would like to establish ABC trust in order to avoid probate when they die so the property immediately goes to their children. To complete the establishment of the trust, John and Jennifer need to transfer property to the trust. In this case, John and Jennifer will use quitclaim deeds to transfer the Brooklyn house and Manhattan apartment to ABC trust.
Suppose that John and Jennifer are married, but the Manhattan apartment is in the name of John only. Michael would like to buy the Manhattan apartment from John for $500,000. Michael is buying the apartment with the help of mortgage financing. John would like to execute a quitclaim deed to Michael in this real estate transaction. Is this proper?
Generally, because a substantial amount of money is involved, Michael would not buy the property using a quitclaim deed. In addition, because Michael is getting a mortgage to finance his purchase, the lender will require title insurance, and the title insurance company will not provide insurance to a quitclaim deed. The usual combination in New York real estate transactions is a bargain and sale deed with covenants or a warranty deed and title insurance. Thus, it will be acceptable to Michael’s lender, at the very least, for Michael to purchase John’s Manhattan apartment with title insurance under a bargain and sale deed with covenants. In addition, to protect further Michael’s rights, he may ask John’s spouse, Jennifer, to execute a quitclaim deed, even if her name is not in the title, to prevent Jennifer from making any future claims to the property.
Suppose that Michael purchased John’s Manhattan apartment in cash under a quitclaim deed. If John later turns out to not be the owner of the property, Michael has no recourse against John because a quitclaim deed only transfers the grantor’s entire interest over the property to the grantee. If the grantor later turns out to not have any interest over the property, the grantor, in effect, has transferred no interest to the property under the quitclaim deed. Since the grantor did not make any warranties in the quitclaim deed, the grantee has no recourse against the grantor. John is not bound to return the $500,000 to Michael.
Different Types of Deeds
It is important to know the other types of deeds used in New York in order to completely understand what a quitclaim deed is. The different types of deeds (in terms of liabilities and warranties) are the full covenant and warranty deed, the special warranty deed, the bargain and sale deed, and the quitclaim deed.
Full Covenant and Warranty Deed
The full covenant and warranty deed (also known as a general warranty deed) provides the most protection to the buyer. It contains operative words of conveyance –“conveys and warrants” – as specified in state law. The deed will normally warrant that the grantor is the lawful owner of the property at the time the deed is made and delivered; that the grantor has the right to convey the property; that the property is free from all encumbrances or liens; and that the grantor will defend title to the estate so that the grantee and the grantee’s heirs and assigns may enjoy quiet and peaceful possession of the premises with the power to convey the property. Based on the language of the deed, the seller has made promises to the buyer (called warranties), and in case these promises are broken, the seller is liable to the buyer for damages.
Special Warranty Deed
The special warranty deed, similar to the full covenant and warranty deed, contains operative words of conveyance, “conveys and warrants.” In contrast to the full covenant and warranty deed, the special warranty deed limits its warranties to those explicitly stated in the deed itself. Generally, the seller, in the special warranty deed, will only limit warranties to those involving her owns acts or omissions during her period of ownership. In the deed, the warranty will be written similar to the following phrase: “will warrant and defend title to said premises against the lawful claims of all parties claiming under me.” The phrase “under me” shows that there is no warranty on any defect in title occurring prior to the seller’s ownership. But if the seller previously encumbered the property or sold the property prior to selling it to the buyer, then the seller is liable.
In the same example above, if John executed a special warranty deed in favor of Michael, and it was subsequently learned that John previously sold the property to Bob, and Bob filed his claims against Michael, then John would be liable because Bob is claiming title under John.
However, if John purchased the property from Martha, and it appeared that Martha previously sold the property to Bob and Bob is now claiming against Michael, John will not be liable in a special warranty deed because Bob is claiming title under Martha and not under John. If it were a full covenant and warranty deed, John would still be liable even if Bob is claiming title under Martha because John warranted to defend title to the estate without any condition.
Bargain and Sale Deed
A bargain and sale deed warrants that the seller holds title and has the right to transfer ownership. The seller makes no promises or representations regarding claims against the property or title defects, and the buyer accepts the property subject to existing claims and title defects. Since the protections given to the buyer, in this case, are relatively low, a lender will require the buyer to purchase title insurance. The title insurance company will do a title search to see if the seller’s title is valid. If the results of the title search are favorable, the title insurance company will agree to insure the title. If the title is insured, any damages arising from defects regarding the property will be paid for by the title insurance company.
A lender will generally accept a bargain and sale deed for as long as it is made with certain covenants, such as the seller warranting that he has done nothing to encumber the title, except for those referenced within the deed. A bargain and sale deed with covenants will, therefore, warrant that the seller holds title and has the right to transfer ownership and has done nothing to encumber the property aside from that specifically stated in the deed.
Other Types of Deeds
There may be other types of deeds, such as a ladybird deed, a transfer on death deed, a tax deed, or a fiduciary’s deed. However, these deeds do not describe the level of protection and warranties provided. Thus, a tax deed may be a bargain and sale deed, or a fiduciary’s deed may also be a quitclaim deed.
Given that real estate is a significant investment for any individual, it is important to always consult with a lawyer prior to making any purchase. This will ensure that your rights are always protected. If you are wondering what a quitclaim deed is or have been contemplating purchasing or selling real property, we at the Law Offices of Albert Goodwin are here for you. We have offices in New York, NY, Brooklyn, NY and Queens, NY. You can call us at 718-509-9774 or send us an email at attorneyalbertgoodwin@gmail.com.
