Despite their ease of use, quitclaim deeds have some issues you should know about before utilizing them.
On the surface, quitclaim deeds are a simple way to transfer property from one person to another. These documents are relatively simple to fill out; your attorney only requires some basic information to help you complete the transaction.
It might sound like quitclaim deeds should be the preferred choice when transferring property in Florida, but there are some potential issues with this method that you'll want to evaluate.
In many cases, while more complicated, a warranty deed is advisable because of the additional assurances it provides as you purchase or inherit a property.
Here's a look at three significant issues with quitclaim deeds you should learn about before transferring property into your name in the state of Florida.
- Quitclaim deeds are the simplest way to transfer property
- They can also save you money on legal fees
- There are some issues with quitclaim deeds to consider
- Speaking with a real estate attorney is advisable
1. Quitclaim deeds don't provide proof of ownership
Using a quitclaim deed to transfer property is often tempting because the paperwork is so straightforward. However, it's essential to remember that the simplicity of the forms means they overlook some vital information that could cause you problems in the future.
For instance, quitclaim deeds don't offer any guarantees or proof of property ownership. While the deed transfers the interest one party has in a property to another, there's no way to know the true nature of that interest.
If person A is selling a property to person B, and person A claims 100% ownership of that property, person B assumes they're taking over 100% of the deed.
However, quitclaim deeds don't ask for any proof from person A of 100% ownership. As a result, person B could find out months later that person A only owned 40% of the property and a third party holds the remaining 60%.
Person B has already paid the total price for 100% ownership in this scenario, but legally, they only own 40% of the property. This example could lead to person B losing their money or beginning a lengthy court battle to get to the bottom of everything.
Either way, this is a situation where using a warranty deed would have been worth the additional time and money because of the assurances it provides. Quitclaim deeds are perfectly acceptable when you know for sure who owns a property, such as buying from a family member or close friend, but they aren't recommended for real estate transactions with strangers.
2. No guarantees on tax liens or title claims
Another reason you should avoid quitclaim deeds when buying property from a stranger is the lack of information on tax liens and title claims. Much like there's no way of knowing the seller's true interest in a property, there's no telling if the deed has liens or title claims.
For example, you could have a situation where you use a quitclaim deed when purchasing a property for cash. This allows the sale to be completed quickly with little paperwork.
However, after you take ownership, you could still learn of a significant tax lien against the property. Since there aren't any banks involved, you wouldn't uncover the lien while securing the mortgage. At that point, you're responsible for paying the debt or risk losing the property.
Quitclaim deeds also fail to uncover title claims during the transfer process. You wouldn't have any information on any boundary disputes, restrictive covenants, third-party ownership, flawed records, or judgments against the property.
Purchasing any property without these guarantees is risky and could result in significant financial losses. However, it's worth noting that your attorney can complete a title search or opinion of title to ensure you have the correct information before buying. Speaking with a lawyer before finalizing any real estate purchase is advisable because of the money involved.
3. Not applicable to commercial loans
You can use a quitclaim deed to complete the transfer of a commercial property. However, lenders won't accept these deeds when issuing a mortgage.
It makes sense from the lender's point of view because they want to minimize risk as much as possible. A quitclaim deed brings additional uncertainty, especially when there could be liens and other debts for which the borrower is ultimately responsible — these expenses could make repaying the loan more challenging.
So, while you could use a quitclaim deed if your parents are transferring the family business into your name, for example, you can't use one to secure financing from a bank to purchase the company from your parents.
Suppose you're buying commercial property and require a loan to finalize the deal. In that case, your lender will need to see a warranty deed to prove all the provided ownership and title information is verified.
How to deal with the issues with quitclaim deeds
As you can see, the issues with quitclaim deeds are significant, especially when completing real estate deals with strangers. The general rule is that you should only use a quitclaim deed when transferring property between family members, although there are other situations where you might find it acceptable.
Many alternatives to quitclaim deeds are available that will ensure your property transfer goes off without a hitch. We've mentioned warranty deeds, which address issues with property ownership, tax liens, and title claims before finalizing the agreement.
Other options worth considering include getting a title search and opinion of title documents from a lawyer or seeking buyer representation. These steps will ensure all your documentation is in order, so you have nothing to worry about when completing a property title transfer.
PeytonBolin can assist with all your real estate legal needs. We can prepare quitclaim deed documentation, when appropriate, or complete a title search or opinion of title paperwork.
Contact PeytonBolin today to learn more about the issues with quitclaim deeds and to receive the legal assistance you require as you transfer property into your name.