Why use quit claim instead of warranty deed to transfer to LLC?

Question

I am looking to transfer title of a few rental properties to an LLC. It seems like investors most commonly use a quit claim deed for this. Why? I would have minimal concern over using a quit claim deed since I know the titles are clear... but why not just do a warranty deed anyways? What is the drawback of using a warranty deed? In my case, in South Carolina, it seems like the cost would be the same, and this is not especially time-sensitive.

So what is the advantage of doing quit claim vs. warranty deed?

I feel like I am missing something... please enlighten me!

Erin

So what is the advantage of doing quit claim vs. warranty deed?

I feel like I am missing something... please enlighten me!

Erin

Tom Gimer · Answer

Nothing.

A QCD will include all other legal requirements for a deed, but without any warranty. If it doesn’t, it’s defective.

To me when I see a quitclaim deed in the chain it just makes me curious about the grantor’s title… also whether the instrument was properly prepared and is valid. That said in some jurisdictions they use QCDs for all transfers.

John Underwood · Answer

You do not have to lookup and reference how the person selling the property got their deed. Derivation section.

I can and have created my own General warranty deeds too. Lots of times I have to move fast to aquire the really great deals. I can find out about a property and own it in 3 or 4 hours.

A QC deed is just commonly used to move a property into an entity where you are the owner of both.

Will Ghidotti · Answer

This is completely wrong... the quit claim deed in the chain of title completely breaks all warranties that run with the property via the previously recorded warranty deed. Warranty deeds are paramount... quit claim deeds are good for clearing title issues and/or if you are unsure of the status of a grantor's title. Even on lot splits... I cannot recommend to my clients enough... WARRANTY DEEDS

David M. · Answer

@Erin Wamsley

Not sure how any other state works (actually not legally sure the details in NJ... :) ), but the issue to me is Title Insurance.

investors do a quit claim deed just because its "easier" and avoids having to purchase new Title Insurance --- I thought you were "supposed" to with a warranty deed.  My issue with this is potentially invalidating your Title Insurance.  While you may be comfortable that you are receiving a clean Title, you now no longer have insurance about the chain of Title prior to your ownership.

Additionally, if the Title Insurance becomes invalidated (which is possible since you no longer have an insurable interest, a fundamental characteristic in insurance) then you should be in breach your loan convenant to have Title insurance is my understanding.  Of course, you should be getting a commercial loan anyway when moving your property into a LLC to protect its corporate veil and keep "clean."  I still haven't found an investor who actually tries to properly handle the mortgage payments w/o co-mingling.

Hope my viewpoint helps.  Happy to chat.  Good luck.

Tom Gimer · Answer

I guess it depends upon the jurisdiction but clerks perform a clerical, not legal, function. Accept payments, record documents, and maintain the database please.Most states aren't so picky. For example: any deed containing the names of the grantor and grantee, a description of the property sufficient to identify it with reasonable certainty, and the interest or estate intended to be granted, is sufficient, if executed, acknowledged, and, where required, recorded. These are MD requirements.Notice no being/derivation clause is required by law... but anybody who regularly prepares deeds includes them as they assist with researching title. If you look closer at SC law they're not a legal requirement. The failure to include a derivation clause in a warranty deed does not invalidate it because the statute requiring it is regulatory in nature. SC Code 30-5-35(c). A clerk should accept any reasonable excuse and record the instrument.

Gregory Sampson · Answer

I just qcd'd a property to an LLC. An attorney drew it up and ran the paperwork for $125 plus filing fee.

the ownership of the original deed and the llc is the same so the llc becomes an assignee on the title insurance (the original policy carries over) I confirmed with the title agency.

so, a quit claim IMO is perfectly fine way to transfer the ownership into my own llc.

John Underwood · Answer

QC deeds are easier and I just type them up myself.

Using one doesn't diminish the underlying GW deed.

Dan M. · Answer

I wanted to do a quit claim deed in a similar situation and my attorney told me exactly what you said "Why bother with a quit claim deed when you can issue a warranty deed?" . I was under the impression a quit claim deed would be cheaper that's why i wanted to do it to begin with.

Marcus Auerbach · Answer

Every state is a littkle different, but basically the key difference lies in the level of protection offered to the buyer regarding the title and any potential claims against the property. A quitclaim deed provides minimal protection, while a warranty deed offers more comprehensive assurances.

A quitclaim deed transfers whatever interest the grantor (seller) may have in the property to the grantee (buyer). It offers the least protection to the buyer because the grantor does not guarantee that they have clear title to the property. It is commonly used in situations where the parties know each other well and trust each other, such as transferring property within a family or between divorcing spouses or to transfer a property into an LLC.

A warranty deed provides the highest level of protection to the buyer because the grantor warrants that they have clear title to the property and that they have the right to sell it. It guarantees that there are no outstanding liens or encumbrances on the property, except those disclosed in the deed. If any issues arise with the title after the sale, the grantor is legally obligated to compensate the buyer for any losses incurred.

Warranty deeds are commonly used in traditional real estate transactions. If you buy an off market deal definitly use a WD and not a QCD.

Why use quit claim instead of warranty deed to transfer to LLC?

Most Popular Reply