Let me begin by saying that I'm not well versed in Texas law. However, from my research I believe that quit-claim deeds are valid in Texas, but because of a strange statute and case law on the issue, the insurers are scared to death of them.
I started by looking for legal blogs on the subject of the validity of quit-claim deeds. Here is one attorney's explanation:
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.
This attorney goes on to quote a Texas Court of Appeals decision, Diversified, Inc. v. Hall, 23 S.W.3d 403 (Tex. App.--Houston [1st Dist.] 2000, pet. denied).
"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).
Okay. So the Court recognizes that a quit-claim deed does pass whatever interest the grantor held, which indicates that quit-claim deeds are valid in Texas. This is consistent with Texas law on the form of a conveyance.
Texas Code § 5.022 provides a form to covey a fee simple estate in real property and it states "or a form that is the same in substance" is acceptable. Of course, this form includes the language "grant, sell, and covey." Quit-claim deeds usually use language such as "release, remise, and quit-claim." But, clearly under Diversified this is in substance enough to pass title to whatever interest the grantor held.
Texas Code § 5.022 also states that "a covenant of warranty is not required," and that "parties to a conveyance may insert any clause or use any form not in contravention of law." This again seems to support the validity of quit-claim deeds.
The problem with insurability seems to stem from Texas Code § 13.001, Validity of Unrecorded Instrument. It basically states that an unrecorded conveyance is void as to a subsequent bona fide purchaser for value. But it goes on to state that an "unrecorded instrument is binding on a party to the instrument, on the parties heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the instrument."
This statute is just plain scary, not only for title insurers, but anyone who takes title by gift or inheritance for no consideration. Such a grantee takes title subject to any previous conveyances to a third-party, whether or not that conveyance is ever recorded.
Able owns Blackacre. He quit-claims to his son Baker. Baker promptly records his quit-claim deed. The problem is that nobody can possibly know if Able had previously conveyed the property to someone else who never recorded the instrument of conveyance, yet that "someone else" would hold title, rendering Baker's quit-claim deed worthless. Would you want to insure Baker's title?
Essentially, if you take title for no consideration (as is usually the case with a quit-claim deed), you take title subject to any prior conveyances whether they appear in the public record or not. That "prior conveyance" could be a deed, or just as easily a mortgage or land contract that was never recorded.
Apparently, title companies in Texas are not willing to take on such a risk... and I can't say that I blame them. But given the fact that a quit-claim deed does convey whatever interest the grantor had, under Texas law the conveyance would be valid. The problem is how can you tell what interest the grantor had, if the law also recognizes the superiority of unrecorded conveyances?
It appears that Texas title companies have just adopted a policy of not recognizing quit-claim deeds (despite the fact they are valid in Texas). But what about interests that pass by certificate of transfer in probate? Or conveyances to trusts? Even if a standard deed is used, with no covenants of warranty... if there is no consideration, it would seem to be subject to the same risks as a quit-claim deed. Perhaps there are other laws, or tricks-of-the-trade, that Texas real estate lawyers can rely on to perfect title.
I wonder if title companies are just willing to assume the risk where the conveyance is made by means other than a quit-claim deed? Regardless, this risk seems too great to leave the Texas law unchanged. This is something that the Texas legislature should take a look at.
In the mean time... avoid quit-claim deeds in Texas!
I would welcome any comments from those more familiar with Texas real estate law. How can you ever be sure a conveyance of a gift is insurable? Maybe I'm missing something... something that only makes sense in Texas.