Why are there 3 Types of Real Estate Deeds ?
There are three types of real estate deeds available to transfer property from one party to another: a General Warranty Deed, a Special Warranty Deed, and a Quitclaim Deed. The difference between these three are the amount of protection they offer to the purchaser of the property. The rules are as follows:
General Warranty Deeds
General Warranty Deeds provide six covenants of title, or guarantees, to the purchaser. Three of those covenants are what is called present covenants, meaning that the guarantees apply to conditions present prior to the transfer, and the other three are future covenants, which are promises for protection against future events.
Present Covenants: These are promises made by the seller to the buyer that certain conditions will be true prior to closing.
- Covenant of Seisin:
This is a promise by the seller that he or she is the rightful owner of the property being sold.
- Covenant of No Encumbrances:
This is a promise by the seller that the title to the property is owned free and clear of any liens, mortgages, taxes, leases, easements and other restrictions.
- Covenant of the Right to Convey:
This is a promise by the seller that he or she has the legal right to transfer the property to the buyer. The seller must hold title in order to possess this right.
Future Covenants: These are promises made by the seller to defend the buyer against certain problems that might arise after the property is transferred.
- Covenant of Quiet Enjoyment:
The future covenant of quiet enjoyment is the seller’s assurance to the buyer that his right to possession will not be disrupted by a third party’s claim to title after the purchase is complete.
- Covenant of Warranty:
Similar to quiet enjoyment, this is a promise made by the grantor that if there are claims against the purchaser’s title by a third party after the sale is complete, the seller will defend the purchaser against those claims. The seller also agrees to compensate the buyer for any losses incurred as a result of the third-party claim.
- Covenant of Further Assurances:
This is a promise by the seller to help the purchaser perfect his title should the need arise sometime in the future. This typically involves providing documents or correcting mistakes.
Special Warranty Deeds
A Special Warranty Deed provides less assurances to the grantee than the General Warranty Deed. Essentially, a special warranty deed only provides the three Present Covenants that the general warranty deed provides, and does not provide any future covenants.
So the special warranty deed will provide the Covenants of Seisin, No Encumbrances, and the Right to Convey, but will not provide protections for Quiet Enjoyment, Warranty, or Further Assurances.
Special warranty deeds are often used by developers when they sell new construction homes.
Special warranty deeds essentially only warrant against defects in title that were created by the grantor’s actions or inactions.
Quitclaim Deeds provide the least protections of the three types of deeds.
In essence, they provide ZERO protection to the grantor.
The Pros and Cons of Quitclaim Deeds
Many people have heard of quitclaim deeds, but do not understand the pros or cons of using one to convey ownership interest in a piece of real property. Hopefully this quick breakdown of when, and how, to use a quitclaim deed will help you decide if using one is right for you. If you decide using a quitclaim deed is right for your circumstances, I’ll briefly explain the process for using a quitclaim deed, and provide a free quitclaim deed form that you can fill out in just a few minutes that will be accepted by any county register of deeds in North Carolina.
What Does a Quitclaim Deed Do?
A quitclaim deed is a document that transfers any interest a person or entity may have in a piece of real property to another person or entity, without providing any warranty as to the marketability of the title. Marketable title is free of liens, liabilities, ownership interests, or other entanglements that might be barriers to future transfers of the property.
A quitclaim deed basically says to the receiving party, “I give you whatever interest in this property I may have, with no guarantee that I have any at all, and without promising that the title to the property is not encumbered. Furthermore, if it is later discovered that the title is not marketable, I do not agree to defend your claim to the property after the transfer is complete.”
As you can see, a quitclaim deed is not the type of document you want to receive from a seller whom you do not know and trust, because it provides you with no protections whatsoever once the transfer is complete.
So, When Would I Want to Use a Quitclaim Deed?
Scenario 1: Family or Friends
Quitclaim deeds are most often used by owners who want to transfer their full or partial ownership interest in a piece of real property to another family member, or perhaps a close friend. These are often gift transfers, where the Grantee, or the recipient, does not pay for the property and, therefore, does not have any capital at risk that needs to be protected.
There are some situations in which a family member or friend will transfer real property for actual consideration by quitclaim deed. This is never recommended, because it puts the grantee’s capital at risk of loss without due diligence being conducted in the form of a title search by an attorney, and without the protections of a warranty given by the grantor.
Scenario 2: Property Settlement During Separation
As part of a divorce decree or property settlement, it may be the case that one spouse wishes to simply give their ownership interest in a piece of property to the other spouse. In this case, the grantor spouse can simply draft a quitclaim deed for nominal consideration, record that deed, and walk away from the property. This avoids costly closing expenses including transfer taxes, while accomplishing the negotiated or court ordered result of transferring ownership to the grantee spouse. You should ALWAYS consult a family law attorney before agreeing to a property settlement or before a divorce proceeding. Family Law rules are complicated, and have many pitfalls that you may not realize are there until it is too late.
How do I Use a Quitclaim Deed to Transfer My Property?
The process to transfer property using a quitclaim deed requires 3 steps:
- Complete the quitclaim deed form, but do not sign it yet.
- Sign the deed in the presence of a notary public as witness.
- Record the deed with the Register of Deeds office for the county in which the property is located.
A Charlotte property would be recorded at the Mecklenburg County Register of Deeds, for example.
This will require paying a recording fee of about $26.00 in North Carolina.
That’s it. Your transfer is complete.
IMPORTANT NOTE! IF YOU ARE UNSURE IF A QUITCLAIM DEED IS THE CORRECT DEED TO USE FOR YOUR PERSONAL SITUATION, YOU SHOULD CONSULT AN ATTORNEY PRIOR TO RECORDING THE TRANSFER. YOU CANNOT EASILY UNWIND THE TRANSFER ONCE IT HAS BEEN RECORDED!