For the newsletter this month, I would like to focus on the options available for transferring ownership in your transaction. There are a lot of misconceptions out there about what deeds to use and when. We have had many AZREIA members come to us over the years who have taken classes or seminars held by companies that are not state specific in their teachings – specifically deeds. There are many different types of deeds but I will be focusing in on the three main types and their functions. Let’s go in order of strength, starting from the lowest to the highest.
Quit Claim Deeds are sometimes miss pronounced Quick Claim deed but let me assure you this is the lowest form of transfer document. A Quit Claim deed’s function is typically used to clear title issues such as a divorce when a spouse must transfer off title. The grantor (or the person transferring their interest out) is simply saying to the world, “I am out of here”. The grantee (the person the property is being transferred to) is saying “ok I will take it and I know you are not guaranteeing me clear title now, in the past, or in the future”. This is why title companies do not always view Quit Claim deeds as a title insurable document. I know that the Quit Claim deed is the investor’s document of choice but it is not necessarily the best choice. If you are acquiring title through a Quit Claim deed you are being given no assurances at all that you will be able to re-sell that property.
Special Warranty Deeds are typically the document that is used by Corporations, Limited Liability Companies and anyone who has never lived on the property. With a Special Warranty deed, the grantor is giving their warranty that the deed they are transferring “Subject to current taxes and other assessments, reservations in patents and all easements, rights-of-way, encumbrances, liens, covenants, conditions, restrictions, obligations and liabilities as may appear of record,”
Basically they are saying “I only warrant this title against my own actions during the time I owned it”. Title companies will typically insure on a Special Warranty deed with no additional requirements as long as it was prepared and recorded properly. Please be sure you are using at minimum a document preparation company to be sure the deed is prepared properly and to insure no headaches down the road. Title companies can only prepare legal documents as they pertain to an escrow that is being handled by that company. We have a deal with the State Bar that basically says we (Title and Escrow companies) will not steal their business and prepare legal documents any time we are asked. There are many reputable and inexpensive deed service companies out there that can get this done for you. Contact your friendly title agent for a referral if you need one.
Warranty Deeds are typically used in transferring title between a home owner who has used the property as the primary residence and the new owner. This deed is the Mac Daddy of deeds and if you are the buyer, this is the one you want! This deed gives you warranty from the seller from the patent (first deed from the government) forward So not only will you have the title company (should you choose to purchase title insurance) covering your title but the seller is also obligated to warrant the title. The seller (grantor) is telling you that no one will be jumping out and trying to lay claim to the property.
I hope this helps demystify the transfer documents you are using and help you see what type of deed is best for you.
As always, Chicago Title, Jill Bright and I are here to help!