A gentleman called me this week asking for help to purchase his first home in Chicago. I asked if he was under contract yet and the whole odd story came out. The gentleman is not a sophisticated man, self-described as being “very humble”. He does not speak English and sells popsicles from a cart for a living. He is a first time home-buyer who has saved every penny and finally has enough money to pay cash for a house to call his own. He came across a small home which needs work but was perfect for him at a price that sounded too good to be true. The sellers told him that since he was not going to be needing a mortgage, there was no need to complicate things by having to get lawyers and title companies involved. Buyer would turn over the money and sellers would sign a quit claim deed, end of story. Afraid of not knowing what he didn’t know, he decided to run the scenario by a lawyer, leading to our conversation. I ran a quick internet search which revealed overdue property taxes and and that the name of the owners did not match the same people that my client has been talking to. He went on to tell me that there had been some mention about the home still being titled to the previous owner but that there was no need for concern. We got the “sellers” on the phone and they explained to me that while they bought the house under a rent-to-own arrangement, they never recorded the deed because of back child support that was owed. If that was the case, I explained, all they needed to was to record that deed immediately if they wanted to do business with my client. As it stood, the house was not legally theirs to sell which is a big deal. I also explained that a contract was required and that as with any sale, a title search needed to be run and that all proper procedures needed to be followed, including providing the buyer with title insurance, payment of back taxes and any liens still on the property, providing the buyer with a property survey, paying the required transfer tax to the City of Chicago and to the state and the county, crediting the buyer for the seller’s share of the current year’s property taxes which are due next year, allowing for a home inspection, etc. The alleged seller became very upset and threatened the buyer with selling to someone else who would just take a quit claim deed on the property without any lawyer involvement. Good riddance to this property! It would have certainly been a nightmare for the buyer in terms of finances and unwanted legal surprises!
Understanding the Difference between a Warranty Deed and a Quit Claim Deed
In most real estate transactions, the contract calls for a Warranty Deed. A deed is the ownership document for real estate. A warranty deed carries with it certain guarantees. It warrants that the one who is signing over the ownership of the house actually has legal title and rights to the house. It goes on to guarantee that if there is any lien or “cloud” on title, the buyer can sue the seller. Having title insurance also protects a buyer from these issues since a title company will not issue insurance over legal issues without first making sure that everything is clear, or that “title is clear”, meaning that there are no legal surprises or money owed still attached to the house. A quit claim deed, on the other hand, just says that whatever ownership or other rights the person transferring the property has are now transferred to someone else, no promises being made as to what they are actually getting. Quitclaim deeds are fine if someone wants to add a spouse onto their house, remove someone after a divorce, or when there is a name change. But when ownership completely changes hands after a sale, it is buyer beware when it comes to quit claim deeds.
What Could Possibly Go Wrong?
In the scenario that I described above, had the buyer taken a quitclaim deed, he would have held a worthless piece of paper since the home was not the seller's to give, due to the unrecorded deed. That issue aside, the buyer would have been stuck with all of the back taxes. If there was an existing mortgage still on the property, that would be a lien on the house creating a problem and preventing the new owner from ever selling it in a normal transaction. Any liens would have to be paid off, even on a mortgage that was not his. Would he have any legal recourse against the seller? Not if he agreed to accept a quit claim deed. No wonder the sellers did not want a title search to be run! The other big problem that my client faced was the fact that the sellers never recorded their deed, if in fact they had one, from the prior owners- which would completely invalidate their ability to correctly transfer the house over to the buyer. These are just a few of the problems that the buyer would have faced had he gone through with the deal on the seller’s terms without having gone through all of the proper legal channels. While it might sound like a headache to have to use lawyers and title companies and long contracts, this is the ONLY way, in my opinion, to make sure that you are legally protected when you buy a house or other piece of real estate.
How Can I Protect Myself?
If you are a home buyer and the seller wants to skip the legal stuff, they likely will only be giving you a quit claim deed. Even if they promise you a warranty deed, you are still very much at risk if you both agree to do everything informally and there could be trouble for failure to pay various transfer taxes. As a buyer, you not only want to make sure that you are getting clear title, but that you are getting all of the monetary credits that you are entitled to. Money spent on an experienced real estate lawyer is money well spent and could save you literally thousands of dollars as compared to going it alone and trusting the seller. Keep in mind that just because a seller may want to take shortcuts and not get lawyers and title companies involved, this doesn't meant that they are necessarily out to cheat you or do wrong. Often times when family members or friends sell to each other, they mistakenly try to "simplify" the process due to the very fact that they trust each other. Doing things correctly and using lawyers does not signify a lack of mutual trust but is rather a sign of wanting to ensure that no one has any unexpected problems down the road. If you are buying or selling a home in the Chicago area, the best way to protect your investment, your money, and your peace of mind is to have a lawyer looking out for you and making sure that all is as it should be. Give us a call at 630 250-8813 for a complimentary and no-obligation phone call to discuss your concerns. We love real estate and are here to help.