Posted by David Krulac on December 02, 2003 at 06:46:06:
if Bob Smith still has an interest after the transfer the TI is still effective. Trustee change shouldn’t have any effect if the name of the trust remains the same.
Quit Claim Deed, invalidate title insurance - Posted by Dave
Posted by Dave on December 01, 2003 at 19:10:19:
The Michigan Court of Appeals recently considered this very issue. An individual, Thomas Prose, purchased a building through his corporation. He was the sole shareholder. Metropolitan Title Company issued the title commitment and First American Title Company underwrote the title insurance policy. The policy named the corporation as the insured. The title commitment and policy both failed to reflect a detrimental recorded easement burdening the property.
Shortly after closing, the corporation transferred the property by Quit Claim Deed to Tom Prose’s wife. The transfer was done for estate planning purposes. After discovering the easement, the corporation sued both title companies. The corporation claimed the property had decreased value as a result of the easement.
The Michigan Court of Appeals held that the title insurance policy coverage terminated when the corporation executed the Quit Claim Deed. Why? Because the corporation did not retain any ownership interest in the property. The corporation’s argument that the Quit Claim transfer was done only for estate planning purposes, did not carry any weight with the Court.
The Court may have reached a different result if the transfer were done by Warranty Deed. The fine print in the title policy, like most title policies, states that, “The coverage shall continue in force in favor of an insured only so long as the insured retains an estate or interest in the land … or only so long as the insured shall have liability by reason of covenants of warranty made by the insured in any transfer or conveyance of the estate or interest.”
This highlights the difference between a Quit Claim Deed and a Warranty Deed. A Warranty Deed warrants certain matters pertaining to title. In contrast, a Quit Claim Deed warrants nothing. It conveys whatever interest the Grantor actually holds, if any.
Assume you purchase property, receive a Warranty Deed and owner’s title insurance policy. You then transfer the property to your spouse, a living trust or a related corporation (the grantee) for estate planning, tax or business purposes. After the transfer, you discover a title defect. If you transfer the property by Quit Claim Deed, the grantee has no recourse against you, since you quit claimed the property. Therefore you could not make a claim under your title policy. On the other hand, if you transfer the property by Warranty Deed, upon discovery of the title defect, the grantee may maintain an action against you for breach of the title warranties inherent in a Warranty Deed. This could then permit you, as insured under your title insurance policy, to make a claim.
Moral of the story: The next time you transfer property for business, tax or estate planning purposes, think about using a Warranty Deed. It could preserve your rights under the title insurance policy
The use of the Quit Claim Deed is over-rated, and - Posted by David Krulac
Posted by David Krulac on December 01, 2003 at 22:21:23:
over used. Most people don’t understand the differences.
My policy is that a warranty deed should be used in most cases. If the Grantor (seller) has good title then Quit Claim Deed will transfer that good title just as will a Warranty Deed. But as you point out when the Grantor has bad title, that bad title is transferred to the Grantee (buyer) with no guarentee, warranty or recourse.
If you are the Grantee (buyer) and you think that the Grantor has good title, make the GRantor back that up with a warranty deed. If you are just trying to remove a cloud to a property that you already own a Quit Claim Deed could suffice, but be very careful particularily if you don’t know the difference in the types of deeds. Ignorance could be very costly.
Re: Title insurance most policies terminate with a sale or transfer of the property, so be careful their.
Title insurance only covers you until you stop owning the property.
David Krulac
Central Pennsylvania
Re: The use of the Quit Claim Deed is over-rated - Posted by firefox
Posted by firefox on December 02, 2003 at 01:04:47:
>Re: Title insurance most policies terminate with a sale or transfer of the property, so be careful their.
>Title insurance only covers you until you stop owning the property.
Given that, what’s the right way to:
- transfer from owner (Bob Smith) to trust (The Smith Family Trust), or
- transfer from trustee to trustee
so that title insurance remains in force? Buying a new TI policy is simply a waste of money in such cases.