A quit claim deed is typically used to convey the interest of the owner to another party.
But, unlike a warranty deed, a quit claim deed only transfers the interest that the seller has, and that interest could be subject to liens on the property that the buyer now assumes.
In other words, you’re taking a big risk when you purchase a property and take title under a quit claim deed.
Quit Claim Deeds are frequently used in divorce cases where one spouse transfers their interest in the property to the other spouse..
Or, when a parent is transferring property to children.
Another application is when a member of an LLC transfers their share of a property to the other members of an LLC.
These types of transactions are typically acceptable.
But there’s one instance where taking title to a property under a Quit Claim Deed could be very costly to the buyer.
I’m going to share a true story with you right now.
A client of mine purchased property on a Land Contract. When my client paid the land contract in full, the owner transferred the property to my client with a Quit Claim Deed.
By the way, my client never consulted with me when purchasing the property, and if my client did, the result would be different.
Long story short, a few years later, my client wanted to sell the property. My client found a good buyer, and that buyer applied for a mortgage and was approved.
However, when a title search was performed on the property, a big lien appeared on the title for a judgment that was taken against the original seller. And, of course, the judgment was required to be paid in order for my client to sell the property.
The original judgment was for $9 thousand dollars, and the interest accrued to over $8 thousand dollars for a total lien of $17 thousand dollars.
So, my client contacted me. My client was shocked. My client’s realtor didn’t know what to do.
When a judgment is taken against a person, if that person owns real estate, the lien attaches against any property that is owned by that person. At least that’s how it works in Wisconsin.
Fortunately, I was able to negotiate with the judgment holder for a substantial reduction in the judgment lien.
What happened to the original owner? Nowhere to be found. That’s why that original owner conveyed to property to my client with a Quit Claim Deed. Sneaky.
That was an expensive lesson for my client, and for investors out there who purchase property and try to save money by not hiring a lawyer who is knowledgeable in the area of real estate transactions before purchasing.
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