You're sitting at the closing table and the moment of truth comes..... the moment that you will legally and officially own the property. A mountain of paper has been pushed in front of you and out of the way. It's time to sign the deed!
But, why does it say Warranty Deed at the top? Am I getting an extended warranty on the title to my house? Sort of.....
A Warranty Deed is the most common form of deed in Tennessee real estate transactions. The reason it is called a warranty deed is that the seller is giving the buyer certain "warranty" about the title to the property. Typically these warranties are contained in the paragraphs following the property description and look something like this:
And the said Parties of the First Part, for themselves and for their successors and assigns, do hereby covenant with the said Parties of the Second Part, their heirs and assigns, that they are lawfully seized in fee simple of the premises hereby conveyed; that they have full power, authority and right to sell and convey the same; that said premises are free from all encumbrances, except as set forth hereinabove; and that they will forever warrant and defend the said premises and the title thereto against the lawful claims and demands of all persons.
The sellers are giving a warranty or guarantee to the buyer that they own the property, they have the authority to convey it, the property is clear from all encumbrances (except those set out in the description.... pay careful attention to the description) and, most importantly, they will defend these guarantees for the purchaser forever. So if a problem were to arise in the future that the title to the property was clouded because a seller didn't have the authority to convey or didn't own the property free and clear, that seller could be liable to the buyer for the breach of the warranty given.
A warranty deed is required in just about all real estate transactions. It is also almost universally required to obtain title insurance. (Sometimes this is called "insurable title.")
In order to record a warranty deed in the register of deeds office, a transfer tax must be paid based upon the sales price of the property (or fair market value, whichever is greater).
Now, what if I don't want to give those warranties to the buyer? What if I'm just transferring the property to my children or spouse without receiving any money? That's when you would sign a quitclaim deed.
A quitclaim deed does not contain the warranties of title that we saw above. The simplified way to look at a quitclaim deed is "whatever interest I've got, you now have. I'm not saying I have good title or bad title, but what I have is now yours." Quitclaim Deeds typically cannot be used to obtain insurable title. They are really meant to be used between persons who are already on the title and want to transfer ownership among themselves, spouses who want to create an interest in the property for the other spouse (or dissolve an interest), or situations where the title to the property may be in question and the seller and buyer are fully aware of the title issues. A quitclaim deed should never be used for an "arms length" transaction between parties.
A quitclaim deed does not require a transfer tax to be paid if the parties did not exchange money for its execution. If money was exchanged, a tax must be paid.
Anytime a quitclaim deed appears in the chain of title, your attorney will take a deeper look at it to see why it was used instead of a warranty deed. Quitclaim Deeds "break the warranty chain" and can cause title issues.
So there you have it, warranty deed versus quitclaim deed. When you are at the closing table, always look to see what kind of deed is being signed (or you are signing). If you have questions about it never be concerned about asking your attorney what does this deed mean to me? If you are closing at a location without an attorney, seek the advice of an experienced real estate attorney if you have questions.
Comments