I see far too many quitclaim deeds being used in situations where a warranty deed would be far more appropriate.
What is a quitclaim deed?
A quitclaim deed relieves the grantor of any liability whatsoever with respect to any title problems or defects, but sometimes in estate and business transactions, the far wiser approach is to allocate the risk to the grantor rather than the grantee. And the way to do that is with a warranty deed.
When a deed is being used to fund a revocable trust, or to transfer family property to a family limited partnership or family LLC, a warranty deed is often the preferred choice. Often, I see quitclaim deeds prepared by individuals rather than their counsel. You may be harming yourself using a quitclaim deed.
When would a quitclaim deed be used?
Rarely, rather than usually and the reason a quitclaim deed is often used because the new grantor took the property by a quitclaim deed and so there is no alternative.
Why can a quitclaim deed be harmful?
Back to the potential harm of using a quitclaim deed when a warranty deed is the preferred choice: the greatest harm is the loss of title insurance coverage that otherwise might have protected title to the property. A quitclaim deed has no insurance coverage.
The trend in Wyoming where an insured under a title insurance policy transferred his Wyoming ranch to a trust by quitclaim deed, the court said: "the policy clearly and unambiguously limited coverage to the insured and his heirs, devisees and personal representatives, which according to Wyoming law, did not include the trust. This example is where the grantor, the rancher, took the property by warranty deed but then conveyed the property by quitclaim deed to his trust. There would be no title insurance coverage for the conveyance to the trust in this example.
Another trend is that where the title insurance policy only protected the grantor, the policy terminated when the entire title interest was transferred by quitclaim deed to another person.
Why use a warranty deed?
Why have a warranty deed with title insurance? One reason is by use of a warranty deed, the grantee trust, in our example above, would have had a claim against the grantor, who in turn may call upon the title insurer to defend any defect in title. Remember, with a quitclaim deed there is no warranty--or guarantee--or insurance.
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