|Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance.|
What Is a Quitclaim and Does It Make Sense for You?
By Britt Erica Tunick
One of the quickest and simplest ways to transfer ownership of property is through what is called a quitclaim deed. But, as most of us have learned at some point in our lives, the easiest way of doing something is not always the best way.
A quitclaim deed is essentially a legal way of bypassing the closing process for the sale of a house by directly signing over its full ownership, or a seller’s share of a property, to another person and then registering the transaction with the county clerk’s office where the property is located. And it may or may not involve the exchange of money, depending on who a property is being given to, such as: the addition of a spouse to the deed for a home already owned before a marriage; the removal of one spouse in the event of a divorce; the transfer of ownership from a parent to a child; the transfer of partial ownership from one sibling to another; or even just to correct mistakes on a deed. Unlike traditional real estate sales, which involve title searches to authenticate who the legal owner of a piece of property is and whether there are any liens or claims against it, a quitclaim is a direct transfer between two parties and assumes a general level of trust between them.
Though a quitclaim is completely legal and much easier than the traditional sale route, it is not always your best bet, particularly in the case of a sale between non-family members where a title search is always a good idea. While the speed of a quitclaim may make it seem appealing, especially since there are even free quitclaim templates available online, such deeds do not come with any protections or warranties, and leave a buyer open to any liens or claims that may exist against the property, or even a later discovery of other owners of the property.
The risks of using a quitclaim deed extend to property transfers within families as well, since the transactions are subject to applicable tax rules. Among the information that must be included on a quitclaim is the sales price. Even if the property is transferred free of cost, or at a price well below market value, there may still be tax repercussions, including gift taxes or state transfer taxes.
There are many situations where a quitclaim is still the best idea, just make sure that yours is one of them. Given that tax laws vary between states and can often be quite complicated, if a quitclaim is something you are considering, it is worth consulting a financial advisor or tax expert before going down this road.