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Repercussions of a Quitclaim Deed

Homebuyer receiving the keys to their new home after closing.

In North Carolina, there are three main types of deeds used to transfer property ownership. These include grant deeds, warranty deeds, and quitclaim deeds. Those selling property within the family or through a trust might want to avoid extra hassles by using a quitclaim deed. However, going this route could end up doing more harm than good in the long run.

If you’re considering selling property using a quitclaim deed, it’s important to understand what repercussions this may have for the future. To help you reach the best decision for your situation, we’ll help explain what a quitclaim deed is, when to use one, and its limitations.

What Is a Quitclaim Deed?

With a grant and warranty deed, the seller guarantees that they are the owner and have the right to transfer ownership to a new party. However, no such guarantee is made in the case of a quitclaim deed. Instead, a quitclaim deed is used to transfer the seller’s “ownership interest.” That means the seller may not be the property’s true owner, and there is no guarantee that they haven’t sold the property to another person.

When To Use a Quitclaim Deed

Purchasing a property through a quitclaim deed requires equal parts thorough research and trust. Since trust is such a significant factor, quitclaim deeds are most commonly used in inter-family real estate transfers. When families wish to avoid the cost of title insurance and attorney fees, they may use a quitclaim deed instead.

Quitclaim deeds are also used when moving properties in or out of a trust. For instance, during a bank refinance, a bank wouldn’t provide a loan to a trust because property ownership must be under the name of a real person. Therefore, a trustee could use a quitclaim deed to move property ownership to a real person before securing the bank loan. After the loan is secured, the trustee could use a quitclaim deed again to transfer the property back into the trust.

Finally, a quitclaim deed may be used when transferring property ownership between spouses. However, it is more common for such real estate transactions to be completed using an inter-spousal grant deed.

When Not To Use a Quitclaim Deed

Unless you know the seller on a deep, personal level, it’s probably best to avoid transactions that use a quitclaim deed altogether. There is significant risk involved with quitclaim deed transfers, and taking on that risk could come at a great cost to you and your family.

Limitations of a Quitclaim Deed

Along with the increased uncertainty, quitclaim deeds have many limitations that make these real estate transactions more difficult. Such limitations include:

  • Title insurance: In some cases, a title company may be unwilling to insure a property transfer that relies on a quitclaim deed due to the uncertain title history.
  • Mortgage loans: Many mortgage lenders insist upon warranty deeds when backing property loans, meaning you may be unable to secure a loan without one.
  • Third parties: Since there is no guarantee of ownership at the time of sale, the possibility of a third-party interest is left wide open.

If you’re preparing a real estate sale using a quitclaim deed, it’s important to mitigate risk by relying on a skilled professional.

Matheson Law Firm, P.A. offers quitclaim deed assistance that North Carolina residents can trust. Schedule a consultation with our team to get started with the quitclaims process today!