How to get the most out of Quit Claim Deeds

Question

New investor here. Would very much appreciate any advice on how to go about getting the most out of quit claim deeds. My mother currently has two properties. Her own and a rental. She doesn't want anything in her name any more and is looking to move away and rent. We are thinking about doing a quit claim deed on both to my holding company. I will be forming LLCs for both. There's about 25K left on each individual loan with around 50k in equity in each property as well. Each property could use about 10k to get them where they need to be to get max rent for their respective areas.

I've never dealt with quit claim deeds before, so I'm just trying to get any tid bits of knowledge, advice, strategies or warnings that this community may offer. Ideally I would like to use these two properties the most efficient way possible to begin maximizing my portfolio growth.

Thank you all for taking the time to read.

I've never dealt with quit claim deeds before, so I'm just trying to get any tid bits of knowledge, advice, strategies or warnings that this community may offer. Ideally I would like to use these two properties the most efficient way possible to begin maximizing my portfolio growth.

Thank you all for taking the time to read.

Bill Gulley · Answer

A J Beard mentioned, Quit Claim Deeds are not for sales of any kind!

They are properly used between co-owners, business partners, family transfers for granting title interests or from an owner to their Trust or business entity which they are a party to.

You mother will have no interest in your LLC and your LLC is not you.

Your situation is more unique since your mother is granting title, this can be accomplished as a simple estate planning tool in order for you to "manage" the affairs of your mother. This approach can allow you to avoid the due on sale clause of your mother's mortgages and you can assume her obligation to pay, but you're not assuming her mortgage obligation.

It will be harder to avoid due on sale issues putting your LLC in title, but a letter from your attorney may do it, such being for estate planning purposes.

You should also ask about a an Irrevocable Trust, naming you as Trustee, this would allow you to direct the property matters for her. However, if she is getting up in years or has health issues and she is disposing of assets to qualify for medical benefits, a Trust won't help her. Ask your attorney about disposing of assets and the look back period for such qualification requirements.

A new loan will be easier to qualify for to refinance than a HELOC if you have credit issues, a HELOC is also for owner occupied properties. You may obtain a line of credit as a commercial loan on a rental, but this is a separate matter from your original title question posted. Better to make additional questions under other threads, members will read this as to quit claim deed filings.

A quit claim is most appropriate to you personally. If she conveys to a business entity she has no interest in you can have title issues, if that is required then use a Special Warranty Deed excepting out the existing mortgage, in other words, selling on a Subject-To basis.

Good luck :)

Jeff B. · Answer

QC is effective in changing title recording, but can create other issues that you need to become well versed in BEFORE to use this approach.

Issues can include:

• loss of title insurance if there's a change in the owner
• can invoke Due On Sale
• can create a taxable event if new persons appear in the Grantee

I'm not giving legal advise but you need to seek and discuss with a qualified lawyer.

Richard Dunlop · Answer

It also creates a cloud in the chain of title better to transfer by warranty deed.

Usually You(OP) would not be able to obtain a line of credit using the properties as security if you obtained ownership through a Quit Claim Deed without a quiet title action or a redo of some kind.

Handel Carter · Answer

The feedback from all of you has really got me thinking. Very very much appreciated.

Any thoughts on working with a private lender and flat out buying it for the 25K and then taking a line of credit on the appraised equity? Is this the simplest route?

Rick H. · Answer

Your estate planning attorney may ultimately do something like this:

Create a title holding trust for the purposes of holding title to the property subject to the existing mortgages of record.

Owner uses trust transfer deed to pass title to Mom as trustee of Mom's last name trust, under trust dated Xx/Xx/20xx.

Then, Mom subs out as trustee and records substitution of trustee naming your entity (Handel's LLC) as the new trustee.

Should not trigger due on sale, is clean, and can accommodate as many assets as you wish into thus entity or dev. Sub your LLC out later.

Since I deal with many trust litigation matters, this has not posed a problem here in CA.

I agree with the others, quitclaim deeds are better used for releasing interests than affirmatively transferring, although I don't buy into the invalidation of title insurance theory unless you are making a claim for loss under new entity.

Jarrod Weaver · Answer

Perhaps you should inquire about your mother moving the property into a trust and you being part of that trust.

Jeff B. · Answer

HOWEVER, the Warrant Deed will create a taxable event (sales tax) to the County.

Wayne Brooks · Answer

No need to ask the questions again, elsewhere.  There is No need to do a QCD.  You can do a general warranty deed (whatever they call it there) and it simply is subject to the existing loans and any outstanding taxes.  Financing for you later will also be easier to get if the property is in your name, not an LLC.

Handel Carter · Answer

Thank you for your response. I do plan on consulting with an attorney after I've figured out the course I'd like to take. Speaking with a former agent I know, I was told that taking out a line of credit would be the best move. The rates are supposed to be in line with an FHA loan. She said that I would have to wait 6 months after the QCD is filed to refinance, if I were to go the conventional route.

So my further questions would be:

Would you also recommend the line of credit route? I would use it to make the necessary improvements to the properties as well as to acquire more properties.

How to get the most out of Quit Claim Deeds

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