Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Social Security Disability, Business Law, & Estate Law.

 - Attorneys practicing in and around the Chicagoland area. Experienced in the practice areas of Real Estate Law, Mortgage Foreclosure Defense Litigation, Social Security Disability, Business Law, & Estate Law.

Quitclaim Deed vs Warranty Deed – The Differences You Need to Know

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In this post, we discuss the differences between two of the most widely used deeds in real estate: quitclaim deeds and warranty deeds.

When buying, selling or transferring ownership of a property, it is critically important to pay attention to the paperwork of the transaction.

This is why people employ real estate agents and real estate attorneys, in order to help them navigate the unfamiliar contracts and paperwork.

You need to know what type of deed a property has, and the correct type of deed to use when transferring your interest in a property to another person.

The two most commonly used deeds when transferring real estate are quitclaim deeds and warranty deeds.

 

What is a quitclaim deed?

mortgage applicationA quitclaim deed is a type of deed that transfers the actual legal rights to a property if any exist, that the grantor — the person who is transferring a stake in a property to another person — has without any representation, warranty or guarantee.

In other words, a quitclaim deed gives no guarantee of the title status of a property, any liens against it or any encumbrances.

 

What is a warranty deed?

A warranty deed is a type of deed that is generally used in more complex situations, including when someone is getting a mortgage to buy a home.

With a warranty deed, the person transferring title of a property (the seller) is guaranteeing that they have a defensible ownership interest in the property and can, therefore, transfer their ownership interest to the other party (the buyer), Sian says.

Since the seller or “grantor” is guaranteeing their ownership, the warranty deed provides more peace of mind and less room for trouble.

 

When is a quitclaim deed used?

Home lending daysA quitclaim deed may work just fine if the grantor truly has the legal rights to a property and there are no liens or problems to be aware of. For the most part, quitclaim deeds are used in safer situations where there’s little question about the ownership interest in a property.

Quitclaim deeds are often used when someone is transferring ownership interest of a property they own to a limited liability company or trust they also control.

Quitclaim deeds can be used when someone is transferring ownership of the real estate to family members. For instance, maybe a couple is getting married and one spouse wants to add the other to the deed as a result.

In the event of a divorce, one spouse can quitclaim their interest in the property to the other spouse as well.

 

When is a warranty deed used?

If the grantor of a warranty deed misrepresents the ownership they promised in a property that made the transfer viable, they can be sued.

An example of how this could work in a situation that may seem “safe.” is as follows.

Say a few siblings inherit a home from a parent. They don’t need the house and they decide to sell it. However, one of the siblings didn’t sign off on the sale and decides they want to keep the house after the fact.

That sibling can sue to get possession of the home back, but the current owners would be allowed to use the warranty they received under the warranty deed to bring in the other siblings to the lawsuit.

In this case, the warranty protects the people who bought the home since some of the siblings sold the property without the permission of all siblings involved.

With a quitclaim deed, however, the buyer of the property would have no such protection. Instead, they would be left to defend themselves and their ownership of the property, most likely in a lengthy court battle. This underscores the importance of purchasing an owner’s title insurance in case the ownership of the property is disputed.

 

What are the differences between quitclaim deeds and warranty deeds?

Model Home TaxWarranty deeds are a safer option when buying a property. If you are the seller, you should also expect most buyers to request this option. Buyers want to be sure you own the property and will want you to sign a warranty deed.

If it comes out at a later date that you don’t own the property, the buyer will be able to sue you for a breach of the warranty.

There are many scenarios where this could happen, including when transfers of real estate are taking place within a family or extended family.

Even scenarios that seem inherently safe may be anything but, so you may want to use a warranty deed in any scenario where you’re not entirely sure of you or someone else’s ownership stake in any property.

When transferring the property to your child or your revocable trust agreement as part of an estate plan, then in that case a quitclaim deed could be the right choice. It will accomplish the change of ownership, but you are not providing any warranty that applies to the transaction.

It’s up to you, as a buyer or seller, to know and understand the kind of transaction you need and how much protection you want.

 

Original source: Quitclaim vs Warranty Deeds

 


The Law Offices of Lora Fausett P.C. provides real estate law services including loan modificationsbuying and selling legal assistanceshort sales and deeds in lieumortgage foreclosure defense, and more.

Located in Glen Ellyn, Illinois and serving clients in DuPageCookKane, Will, and Kendall Counties.

For Information Call 630-858-0090

 


Short Sale Vs. Deeds in Lieu

There are options out there for many that are facing foreclosure on their homes. Two of them are very similar and often get confused but they are both helpful methods that can help prevent you from going into foreclosure. Those two options are short sales and deeds in lieu.

Short Sale

A short sale is when the homeowner sells their home to a third party for less than the money owed on the mortgage. The lender agrees to accept the proceeds made in the sale, in exchange for releasing the lien on the property.

Short Sale Process

The lender’s loss mitigation department must approve of the short sale before a transaction can occur. The seller must submit a loss mitigation application to be approved for a short sale and this includes:

  • A financial statement, in the form of a questionnaire, that provides details regarding monthly expenses and income
  • Proof of income (if applicable)
  • Most recent tax returns
  • Bank statements (two recent statements for all accounts)
  • A hardship letter

More than likely you will need to provide that there is an offer from a potential purchaser as well on the application. Lender’s usually want there to be an offer before they consider a short sale. An exception to this is with the government’s Home Affordable Foreclosure Alternatives Program (HAFA). This aids the lender in approving of the short sale terms before the home is listed and the lender accepts the short payoff in full satisfaction of the mortgage. HAFA also prevents the lender from coming after the seller with a deficiency judgement.

Deficiency Judgements

The deficiency is the difference between the amount received in the short sale and what is actually owed on the mortgage. Many states prohibit deficiency judgments after foreclosures, but not many do for short sales. Deficiency judgments by state. To avoid a deficiency judgment, the short sale agreement must expressly state that the transaction is in full satisfaction of the debt and that the lender waives its right to the deficiency.

Deeds in Lieu

Deed in lieu is another option to help you avoid foreclosure if you can’t sell your home through a short sale. A deed in lieu of foreclosure is a transaction where the homeowner voluntarily transfers the title to the property lender in exchange for release of mortgage obligation.

Deed in Lieu of Foreclosure Process

Like a short sale, the borrower must request a loss mitigation package from the lender. What you will need to provide the lender with:

  • A financial statement that provides detailed information about your monthly income and expenses
  • Proof of Income (if applicable)
  • Most recent tax returns
  • Bank statements (two recent for all accounts)
  • A hardship letter

If you are approved, you will receive two documents from the lender, one is a deed that transfers ownership of the property to the lender and an estoppel affidavit. The estoppels affidavit sets the terms of the agreement. It will include a provision that you are acting freely and voluntarily. It may include provisions about the transaction and if it’s in full satisfaction or if the lender has the right to a deficiency judgement.

Deficiency Judgments

In the case of a deed in lieu of foreclosure, the deficiency is the difference between the fair market value of the property and the total debt. In most cases, a deed in lieu of foreclosure will release borrowers of all liability and obligations under the mortgage, but not always. Most states do not have a law prohibiting a lender from seeking a deficiency judgment. HAFA deeds in lieu are considered full satisfaction of the debt owed. To avoid a deficiency judgment, the agreement must state that the transaction is in full satisfaction of the debt.