A Quitclaim Deed is a special
kind of deed. Unlike a Warranty Deed or Grant Deed, it transfers
title without warranty. With a Quitclaim, the grantor is saying,
"I'm giving you what I have, if anything, but I am making
no promises". What the grantor has is what the grantee
gets. The grantee has no claim against the grantor if title
is defective or even if the grantor does not own the property.
There are many circumstances where this is a useful and appropriate
device. For example, the parties may know that title is questionable,
and the buyer of the property may be willing to take the risk
of defective title. There may be an apparent defect in the
chain of title, which could create the possibility that a
third party may have an interest in the property. By quitclaiming
any interest he may have, the third party can cooperate in
clearing the title without creating any liability for himself.
On the other hand, there are also situations in which a Quitclaim
is misused. A common example occurs in which the conveyance
is between related parties. A parent might want to convey
property to a child as a gift, a sole stockholder might want
to convey title to his corporation, or a partnership might
want to split title among the partners. In such cases, it
is not uncommon for the conveyance to be by Quitclaim because
the grantor does not want to assume any risk that a title
defect might later surface. This makes sense and is understandable.
Such transactions are usually handled outside of escrow and
without purchasing new title insurance.
What the parties often fail to consider is that the use of
the Quitclaim leaves the parties without title insurance.
If they had use a Warranty Deed instead of a Quitclaim deed,
title insurance would still be effective without any additional
Here's why: Title insurance covers the insured
named in the policy, normally the original buyer. It also
insures anyone who takes title through the person by operation
of law--for example, by inheritance. It does not cover those
who purchase from the named insured, or who receive title
by gift, in trade, or as a corporate or partnership distribution.
However, the policy does continue to insure the named insured
against claims arising from covenants of title given when
the property is conveyed to a third party. This means that
when title is conveyed by Warranty Deed, the grantee can assert
any claim he might have for defective title against the grantor,
who can then obtain indemnification from the title insurance
company. The net result is that the title insurance policy
provides the money to insure against the title defect in the
hands of the new owner without the payment of any additional
premium. There is one potential risk, however. If the property
has risen in value between the time of the original policy
and the time of the conveyance, the claim under the Warranty
Deed may be greater that the amount of the policy, leaving
the grantor exposed to this portion of the claim. If the parties
remain friendly, this should not be a problem because the
claimant can simply waive his claim to the extent it exceeds
the policy limit. If there is a question in this regard, another
solution is to limit the warranty in the Deed to the dollar
amount of the policy at the time the conveyance is made.
A Quitclaim deed is useful, but is not always the best choice
when the conveyance is between related parties. If you are
considering giving or accepting a Quitclaim deed, particularly
between related parties, think through the title insurance
ramifications to insure that you do not inadvertently divest
yourself of protection which could be available without cost.
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