How Do I Transfer the Title of a House?
For all property owners, a day inevitably comes when it’s time to transfer the title to the property to another party. Almost immediately, those homeowners discover there’s more than one way to do this — quitclaim deeds, warranty deeds, special warranty deeds and more.
The way property is transferred depends on the circumstances of that transfer. Importantly, whether you’ll need a title company to conduct a title search or a lender to discuss refinancing options depends on the circumstances, the type of deed used and the purpose of the transfer.
From You to Trusted Family and Friends
A quitclaim deed is often used to transfer property to trusted family and friends. Quitclaim deeds lack the title covenant of most other types of property deeds, meaning the transfer is without warranty. The property owner, the grantor, transfers the ownership of the property to the grantee, such as an immediate family member, without the protection offered by other forms of deeds. So if a title defect, encumbrance, or challenge comes up, there’s no legal recourse for the grantee.
This kind of “as-is” property transfer carries risk if the grantor isn’t sure his title is free and clear and if the grantee isn’t sure the grantor is acting in good faith. Therefore, this type of deed is generally only used in certain circumstances where such problems are less likely to occur. You may find the need to use a quitclaim deed during a divorce, in which one spouse acts as a grantor, terminating their interest in a jointly owned marital home, and conveying that interest to the other grantee spouse. Another common use is when one family member wants to gift a piece of property to a relative, without a traditional sale.
From You to Your LLC
However, quitclaim deeds can also be used in a small business setting. An owner of a rental property or a piece of investment real estate might decide the time has come to form an LLC business entity, to limit their legal liability if someone is injured on the property or decides to sue the property owner. This is particularly common for owners of multiple rental properties, such that an owner might prefer to form an LLC for each property to protect the other assets.
After a property owner forms an LLC, obtains a Federal Tax ID and opens a bank account for the business, the property owner must then transfer the property to the LLC. This is frequently done with a quitclaim, though some prefer the added protection of a warranty deed.
In either case, you’ll need to work with your county recorder to obtain the correct form for the deed, find out the minimum “consideration” (purchase price) required by local law, get the document notarized, and have the deed recorded by your local registrar agency. You’ll also need to contact any tenants and update the lease.
From You to a Buyer in a Traditional Sale
For traditional sales, a general warranty deed or special warranty deed is almost always used to transfer the title. The warranty deed guarantees the good state of the title, meaning that the grantee, the home buyer, has legal recourse against future claims to the property. This type of deed not only conveys an “interest” in the property, but promises the new title holder that he can legally purchase, possess, and enjoy the property.
Since traditional home sales involve real estate agents, mortgage lenders, title insurance companies, and even attorneys in some cases, the title transfer process is often more obscured from property owners. A title company will conduct a title search and verify the good state of the title, and issue title insurance owner’s policy and lender’s policy documents to further protect the transaction.
While the general warranty deed is the norm here, there are always exceptions. Some sales transactions may use a special warranty deed to address the issue of title defects that arose during the grantor’s ownership. Transactions in Massachusetts are another outlier, preferring quitclaim deeds over warranty deeds.
Transferring the Title to Cure Defects
When title defects do occur, they need to be cured. Often a deed of one type or another is involved in this process. In some cases, a quitclaim can be used to remove known defects in a title without the time and expense that comes with litigating the issue. A title established as unquestionable via quitclaim can then be transferred through a warranty deed, further clarifying ownership and chain of title of the property.
Some Final Notes for Mortgage Holders
Property owners considering a transfer of a property should be particularly cautious if they are mortgage holders. A homeowner expects his mortgage to change or come to an end with a refinance or traditional sale. However, some quitclaim grantors are unaware their mortgage will also be affected by such a transfer.
Many mortgage agreements have what’s known as a “due on sale” clause, which means the lender will “call” the loan and require full repayment. Even without an exchange of money, such as a gift quitclaim transfer between family members, a mortgage lender’s procedures could require immediate repayment of the loan balance.
Most grantors won’t have funds available for this, so they may want to refinance, have the grantee assume the mortgage or be approved for a new mortgage altogether. Furthermore, a quitclaim deed doesn’t transfer the mortgage, so even if a lender allows a property to be gifted, timely mortgage payments continue to be the sole responsibility of the grantor. If a lender allows a transfer for an LLC, it could require the grantor to sign a new personal guarantee of mortgage repayment, or require a refinance through the LLC.
Thus, this is a thorny issue for property owners with a mortgage. It’s best to consult with your lender before taking any steps to transfer or sell your property.
Furthermore, if you’re considering selling or transferring a property that has a quitclaim deed history, you may want to contact a national title insurance company. The firm can conduct a title search, cure any defects, and even issue an owner’s policy for added protection.