Not a “Quick Claim” Deed
We might as well get this out of the way right upfront. Don’t feel bad if you thought otherwise, but it’s actually called a “Quit Claim” Deed not a “Quick Claim” Deed. While that may sound funny, the name comes from the idea that the person transferring the property is “quitting” any rights they have to it.
Basics of a Deed
Let’s back up even one more step. What is a deed in the first place? A deed is the legal instrument that actually transfers title of real estate (land/buildings) to a new owner. In the State of Iowa, there are three main types of deeds:
- General Warranty Deed
- Special Warranty Deed
- Quit Claim Deed
This post will focus mostly on the third category – the Quit Claim Deed.
Unlike when you buy or sell a car, there is no physical “title” to real property. With your car, someone (usually you or your lender) holds the physical “title” to the car. With real estate, there is no physical title to hold. Instead, a Deed is recorded with the County Recorder’s Office to make public record of the transfer of title in the real estate.
The person transferring property is sometimes called the “Grantor” or “Vendor” and the person receiving the property would be the “Grantee” or “Vendee”. While it’s important to know what those terms mean, when I draft documents I prefer to use common terms like “Seller” and “Buyer”. There no legal requirement to use archaic language, and I believe using common terms help improve all parties’ understanding of legal documents. But enough on that, we’ll do a separate post on that topic in the future.
Differences in Deeds
The main differences in the three types of deeds listed above is whether they come with “warranties” of title. As the names may imply, General Warranty Deeds and Special Warranty Deeds come with certain warranties of title – meaning the Seller is not only transferring the property they own, but warranting that they are transferring good and legal title, free and clear of certain liens and encumbrances. General Warranty Deeds carry more and different warranties than a Special Warranty Deed.
In contrast, a Quit Claim Deed contains no warranties of title at all – the Seller is merely transferring any interest in the property that he/she might have at the time of transfer. That could be a full and valid title, or it could be nothing at all!
So Why Ever Use a Quit Claim Deed?
You might be wondering why anyone would ever want to use a Quit Claim Deed. It might seem like an inferior product. Indeed, in an arms-length sale between a Buyer and Seller, the final transfer of title should almost always be done with a Warranty Deed. There are exceptions, but a Buyer would be well served to request a Warranty Deed and not a Quit Claim Deed at the time the property is transferred.
But Quit Claim Deeds do serve many valid purposes. They are often used in the following situations:
- To clear up title defects. Sometimes, there are irregularities in the recorded title history of the property. If wouldn’t be appropriate to fix those with a Warranty Deed, but a Quit Claim Deed where someone declares to the world that they “quit” and transfer whatever interest they have in the property can be a great way to clear up a nagging title problem.
- To change title in family situations. Often, people will want to add or remove a spouse or other family member to title. While a Warranty Deed could work, the commonly-preferred method is to use a Quit Claim Deed to change title without really changing ownership or possession.
- Retitling to an LLC. Similar to #2 above, people will often want to transfer property into a separate LLC they have created. A Quit Claim Deed is a quick and easy way to retitle the property.
Remember one thing – a Quit Claim Deed will transfer whatever ownership interest you have in the property, but it does not affect any mortgages on the property. In other words, say a husband and wife are on title to their home. They get the bright idea to “Quit Claim” the wife off the property, thinking she will no longer be responsible for the mortgage payments to the bank. The Quit Claim Deed will have no effect on the lending documents you signed with your lender. If both spouses signed for the loan, removing one from title will not relieve them of making payments to the lender. There are certain unique circumstances that can change that basic rule, but they are beyond the scope of this post.
And perhaps even more importantly, using a Quit Claim Deed to add or remove people to title while there is a mortgage on the property could trigger a “Due on Sale Clause” in your mortgage. Virtually every modern mortgage has a provision called a “Due on Sale” clause. In essence, the provision states that if you “sell” or “transfer” the property, the lender can “call the loan” due and payable in full. Of course, that would be a major problem for most people. If you have a $250,000 loan balance on the property, most people could not write a check for that full unpaid balance if it were suddenly called due!
While we caution all clients to be aware of this possibility, we have rarely (if ever) seen a Due on Sale clause enforced due to a the filing of a Quit Claim Deed. There may also be additional legal arguments to make about whether that would be legal, equitable or truly enforceable by the bank in that type of situation. That said, we always recommend out of an abundance of caution that if you wish you Quit Claim someone onto or off title to the property, that you notify your lender and receive their written consent first.
How Can We Help?
My posts on this blog are designed to introduce you to concepts and hopefully pull back the curtain a little bit on topics that can at first seem daunting. But remember, each legal situation is different, and different facts can cause very different outcomes. This blog is for informational purposes only, and we are not representing you or providing any person legal advice by this blog.
If you need specific legal help, or want to add or remove someone from title, please Contact Me and I’d love to help you out.