You’re so excited – you just purchased a terrific piece of real estate at a tax auction for dirt cheap. Your only thought is probably, “How was I fortunate enough to find such a hidden gem?” You won the bid and now own the piece of property. Case closed, right? Not so fast. Don’t let the excitement of your new investment allow you to forget the old adage of caveat emptor, or “buyer beware.”
There are countless ownership issues that could arise, but one is particularly common with foreclosed properties: When someone “loses” a property, it means that a lending institution or county foreclosed on the property and reclaimed ownership of it due to either an unpaid loan or unpaid property taxes. Eventually, the property usually ends up at an auction where creditors and local cities sell the property to recoup the unpaid debts via a quit claim deed. The deeds used, and corresponding title transferred, in these scenarios often lead to what is commonly called a “cloud” on the title. In other words, the title is not clean, or clear. There are multiple parties that may have an ownership interest in the property, with each not understanding the extent of his or her interest.
Quit Claim Deeds
Recall that deeds are instruments of conveyance, but all deeds aren’t created equal. The easiest or simplest conveyance is a Quit Claim Deed because it does not require the grantor (also called seller or transferor) to do any research to ensure that he or she has a present interest in the real property. Instead, a Quit Claim Deed operates by transferring whatever interest the grantor has to the grantee. Here’s an example: Let’s say I sign a quit claim deed to you conveying the Ambassador Bridge to you. Do you now own the Ambassador Bridge? No, because I never owed the Ambassador Bridge.
Another caution with Quit Claim Deeds is that they do not guarantee, or warranty, that the property is free from encumbrances. Encumbrances on real property have the same definition as a general encumbrance: a hindrance to your rights as an owner of the property. The hindrance can vary based on the type of encumbrance, but can prevent you from being able to transfer or sell the property. Such an encumbrance clearly diminishes the value of the property. The most common encumbrance is a lien, which is simply a term for a document filed by a creditor that demonstrates that they have a stake in the property until the owner has repaid a debt. A mortgage is the most common example of a lien on property. Once the mortgage is paid off, the lien is removed and the property owner can transfer the property without issue. Here’s an example: Your mother deeds you the family house and then subsequently passes away without having paid off the mortgage. In this scenario, you do not have clear title to the house unless you pay off the mortgage.
A Warranty Deed, on the other hand, is a much more meaningful and secure document of conveyance. It comes with a covenant of general warranty of title, which means that the grantor lawfully possesses the property, has the right to convey his/her interest, that the title is clear (property is free from all encumbrances like liens, mortgages, and other claims), and that the grantor or transferor will warrant and defend the title against all lawful claims. However, you cannot convey or obtain a Warranty Deed unless the property is free from encumbrances and the title is clear, or “quieted.” Why would you need to convey a Warranty Deed, you ask? Most title companies will not insure title to property purchased at auctions if only a Quit Claim Deed was used to convey the property. And no one wants to buy property that a title company won’t insure title for.
Quiet Title: Our Specialty!
Accordingly, a legal action called a “Quiet Title” action is the process by which an auction buyer can remove “clouds,” or defects in title. Some common defects in title include: multiple claims of ownership, mortgages, liens, breaks in chain of title, county tax foreclosures, etc. The procedure for a Quiet Title action is virtually identical to any other state court lawsuit, but is generally much shorter. Most Quiet Title actions can be completed in three to four months. The person/entity that prevails in a quiet title action has proven superior interest in the property. The result is a judgment that will clear the title and will be recorded with the Register of Deeds in the county of which the property is located. The owner can they convey a Warranty Deed to a third-party buyer.
We Can Clear Up Any Confusion and Your Title
Contact us today at Info@quiettitle.com, 248.399.3300, or visit www.QuietTitle.com for a free consultation. Together, we can discuss and determine the best plan for your individual needs.