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Not Every Deed to Real Estate Is the Same…

People buy and sell personal property all the time on Ebay, Craig’s List, and other places where property is regularly listed for sale. In the law, there are a few different “types” of property. One type of property is real property, commonly known as real estate. Real estate can include a house, a farm, a vacant lot, or a multi-million auto manufacturing facility. Personal property, on the other hand, can include jewelry, cars, antiques, musical instruments, and “intellectual property” such as copyrights, patents, and trade secrets.

The “paperwork” that accompanies a sale of personal property usually consists of a mere receipt (like you might get at Macy’s) or a “Bill of Sale,” which describes the property to be sold, the names the buyer and seller, and the purchase price. If a vehicle has been sold, the State requires the transfer of a “certificate of title” instead of a Bill of Sale.

When it comes to real estate, things change. There are two ways to transfer real estate: through a “warranty deed” or through a “quit claim deed.” Some people call the quit claim deed a “quick claim deed,” but this is wrong. This kind of deed is known as a “quit” claim deed (even though it may be drafted and signed “quickly”).

People can assert “liens” against real estate. The IRS does that if you are behind on your taxes. Real estate may be encumbered by unpaid property taxes or special assessments or a mortgage. These various liens and/or encumbrances are recorded in the County Register of Deeds office and are a matter of public record. When you buy real estate, you do not want to get it encumbered by a lien or mortgage. For example, if you pay $300K for a house, you want a $300K house. If there is a mortgage against the house for $100K in someone else’s name when you buy the house, you will have paid $300K have gotten a $200K house. That is obviously not what you want.

Before “closing” the sale of real estate, a title company usually looks at the records at the Register of Deeds office to determine if there are any outstanding liens, mortgages, or other encumbrances. The title company can also confirm that the seller or transferor actually owns the property. If you pay an insurance premium to the title company, the company will actually assure you that there are no liens or other encumbrances against the property that you just bought. If it turns out that there are liens or other encumbrances on the property, the title company will pay them off as part of the insurance that they have given you for the premium. To be assured of getting title to the property free of any of these encumbrances, you want a “warranty deed” and title insurance. The reason they call this type of deed a “warranty deed” is because the seller “warrants” to you that by the time of closing, all liens or mortgages will have been paid off. That is not what you get if you receive a mere “quit claim deed.”

A quit claim deed merely conveys to you what the transferor has—with all its warts and wrinkles. There is no guarantee that liens and mortgages will be gone when you get the property. In fact, there is no guarantee that the person signing the quit claim deed even owns the property. I could sign a quit claim deed to you for the Ambassador Bridge, which I don’t own. You will get whatever I had at the time if I do that—which is nothing. The very fact that the quit claim deed says “Quit Claim Deed” at the top of the document is considered “fair warning” that you are only getting what I had when I signed the deed, subject to whatever problems the property had when I purported to transfer the property to you.

There is another issue with warranty deeds and quit claim deeds. If I transfer the Ambassador Bridge to you by way of a warranty deed (when I did not own the bridge), you get nothing; however, if I later obtain the bridge, then my ownership automatically hops over to you if I have earlier signed a warranty deed for that property. With a quit claim deed, however, the issue of ownership is an issue when I sign the deed, but not later. That means that if I have “quit claimed” the Ambassador Bridge to you when I did not own it—and if I have somehow acquired the Bridge later on, that doesn’t matter. I did not own the Bridge when I signed the deed and later ownership does not change anything.

The best thing to do when acquiring real property is to hire an attorney to help you. Insist on a warranty deed and title insurance in most cases. There are some exceptions to this general rule like when a couple divorces, and the former marital home is transferred out of joint names and into the wife’s name alone. The parties usually know about any liens or encumbrances, and neither party wants to “warrant” to the other that these liens or encumbrances don’t exist. In those cases and similar cases (often involving inter-family transfers), quit claim deeds can be used.

As they say, “Buyer beware.”

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