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What is a quitclaim deed and how are they used?
A quitclaim deed is a legal document used for real estate transfers. It allows the deed holder (also known as property owner) to transfer ownership of the property to another person or entity. This is not the commonly used method for selling real estate, but is more often used to transfer title to a spouse or family member or to move a property from personal ownership to ownership by a business.
When a quitclaim deed is used, the property owner assumes no responsibility for the title or the condition of the property being transferred. A traditional property transfer is done by warranty deed which requires research to ensure a clear title and no encumbrances such as liens or unpaid taxes.
Quitclaim deeds are most often used when no money is exchanged for the transfer of the property (a lien would prevent a traditional sale via warranty deed).
Infotracer.com can be a useful tool for researching property ownership as a search can show if the person is actually owner of the property being transferred.
When is a quitclaim used?
Some sources say that quitclaim deeds are used too often and insufficiently understood. One of the most common uses of a quitclaim deed is during a divorce when one spouse transfers his or her interest in a shared property to the other spouse under the terms of the divorce decree.
A misconception about this sort of property transfer relates to protecting the assets of a person who is seriously ill, but it’s possible for creditors to legally reverse such a transfer of title in order to recover funds that are owed.
Those who are creating trusts, which secure their assets and properties for their descendants, may use a quitclaim deed to include a property in the trust. Instead of taking effect immediately, this type of quitclaim deed takes effect upon the property owner’s death, releasing the property title to his or her heirs.
Another common use of the quitclaim deed is when a government entity auctions a property in lieu of unpaid taxes. In such a scenario the government (county or sheriff’s department) makes no guarantees about the property condition nor of the title, which the buyer is left to clear up after the sale.
Other common uses include correcting a misspelled name on a deed, changing “tenancy” or names of partners responsible for a business-owned property,
What responsibility does the grantor retain?
The grantor of a quitclaim deed is the owner of the property being transferred. By transferring ownership, the grantor does not transfer any mortgage on the property, he is still responsible for mortgage payments due. Conversely, transferring title of a property does excuse the grantor from any outstanding taxes, which are transferred to the new owner.
Gifting or donating property using a quitclaim obligates the grantor to pay federal income tax on the value of the property if it is valued above a certain amount ( some sources say it must be valued above $1 million to incur the tax). There is a lifetime maximum of $5.5 million in property value that can be given away like this.
Steps to a legal quitclaim deed
- Deed must be signed by the grantor, or seller of the property
- Deed must be signed by the grantee, or new owner, of the property
- Most states require a witness or notarization of the deed signing.