About Deeds in Texas
The Infamous Quitclaim
One of the more common questions we get about Texas real estate law involves Quitclaim Deeds (often mispronounced "Quick Claim Deeds.") There seems to be some sort of popular idea that a Quitclaim Deed is a simple and inexpensive means of selling land or solving real estate problems. Our clients are often shocked to learn that Quitclaim Deeds are practically worthless in Texas, and may even make the property unsellable for decades!
So what exactly is a Quitclaim Deed? The courts have said:
"A quitclaim deed conveys any title, interest, or claim of the grantor in the real property, but it does not profess that the title is valid nor does it contain any warranty or covenants of title. Thus, a quitclaim deed does not establish title in the person holding the deed, but merely passes whatever interest the grantor has in the property." Diversified, Inc. v. Hall, 23 S.W.3d 403 (Tex. App.--Houston [1st Dist.] 2000, pet. denied).
When a person signs a Quitclaim Deed, he is essentially saying, "I don't promise that I own any interest in this land, but if I do I surrender it." Compare this to language in a Warranty Deed, where the seller "grants, sells and conveys the property to the buyer ... to have and to hold it ... forever, and binds seller and seller's heirs to warrant and forever defend the property to the buyer." Under Texas real estate law, a Buyer under a Quitclaim Deed is charged with notice of any defects in title, whether they appear of record or not. (For example, John conveys the property to Bob, who does not record the deed. John then conveys the same property to Sue by a Quitclaim Deed. Even though Bob's deed does not appear in the public records Sue would be charged with notice that John no longer owned the property, and she would receive nothing through the Quitclaim Deed.) For this reason, title passing under a Quitclaim Deed is not insurable and a property that has a Quitclaim Deed in the title will remain uninsurable until the applicable statute of limitations has passed (in most cases, 25 years).
The situation has gotten so bad that in 2021 the Legislature stepped in and amended §13.006 of the Property Code to eliminate some of these concerns for quitclaim deeds recorded more than four years. However, it will take time to see how this statute is received by title companies, lenders, buyers, and the courts. Additionally, the statute only applies to deeds recorded after September 1, 2021.
Does this mean that a Quitclaim Deed should never be used? No. Quitclaim Deeds can be useful in clearing title in some limited circumstances, such as when there is a question about whether a particular heir might have a claim to the property of an estate, or whether a person may have acquired title by adverse possession ("squatter's rights.") In the vast majority of cases, however, it will be preferable to use another kind of deed.
In most land sales, the buyer (and the buyer's lender, if any) will expect the seller to convey a valid title. (Why else would the buyer pay good money to the seller?) In such cases, the seller is expected to make a warranty to the buyer that the seller actually owns the land and has the right to sell it. Such a warranty is called the "warranty of title," and it is expressed in the form of a Warranty Deed. There are two kinds of Warranty Deeds: the Special Warranty Deed, and the General Warranty Deed.
When a seller executes a Special Warranty Deed, the seller covenants with the buyer that the seller has not personally done anything to adversely affect the title being conveyed. For example, if the seller had already sold the property to someone else, had granted someone else an undisclosed option to purchase, or had permitted an undisclosed lien to be placed on the property, the seller would be in breach of the warranty of title. However, if the title is impaired because someone else forged a prior owner's signature on a deed, or sold the property in violation of a court order, the seller would not be liable because the seller did not personally cause the title defect. For this reason, a seller will usually prefer to offer a Special Warranty Deed.
Buyers, on the other hand, would usually much rather have a General Warranty Deed. When a seller makes a general warranty, the seller covenants with the buyer that not only has the seller not personally done anything to adversely affect the title being conveyed, but neither has anyone else who has ever owned the property. Returning to our previous example, if the buyer's title is lost or impaired because someone forged the deed to the seller, the seller will be liable to the buyer for the loss even if the seller had no reason to know of the forgery.
The Interplay Between Deeds & Title Insurance
The issue of whether the buyer will receive a General or Special Warranty Deed is often a hotly-contested point when negotiating a sales contract. Even if the buyer is successful in obtaining a General Warranty Deed, however, the buyer runs the risk that a title problem might arise after the seller has died, moved away, or become insolvent. There is little comfort in having a claim against someone who will not pay the claim. Obviously the buyer who has only a Special Warranty Deed is in an even more precarious position.
Fortunately, the prudent buyer need not rely solely on good luck and the credit of the seller: the buyer can obtain title insurance from a reputable underwriter. A title insurance policy provides indemnity against many forms of title defects. If a covered problem arises, the buyer can make a claim on its insurance policy, and the underwriter will either pay the cost to investigate and correct the problem, or compensate the buyer for the value of the loss.
The Deed Without Warranty
Texas law recognizes another form of deed which is neither a Quitclaim Deed nor a Warranty Deed, but rather something in between. Like a Warranty Deed, a Deed Without Warranty uses the "grant, sell and convey" language to establish title in the buyer. Like a Quitclaim Deed, though, a Deed Without Warranty makes no warranties or covenants of title, so the seller has no liability for title defects. A Deed Without Warranty will rarely be appropriate in a sale transaction; however, because it offers much greater protection to the buyer without any additional risk to the seller it should be considered as an alternative whenever a Quitclaim Deed might otherwise be used.
Transfer on Death Deeds
In 2015 Texas enacted a new type of deed to be used in estate planning. Please see our article on Transfer on Death Deeds.
Admittedly a study of the distinctions between various types of deeds is not among the most exciting legal topics. However, you can be sure that when a title dispute arises all parties involved (and their lawyers) will suddenly develop a keen interest in the type of deed that was used in the underlying transaction. If you have questions about this topic, or if you're looking for an experienced Texas real estate attorney to help ensure the documents in your real estate transaction are properly negotiated and drafted, we would welcome the opportunity to speak with you.