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Source of Title Blog

Are Quit-Claim Deeds Really Worthless in Texas?
by Robert Franco | 2011/06/07 |

I was stunned when I got a call from another Ohio attorney telling me that he was told by a title insurer that real estate he was dealing with in Texas was uninsurable because there were quit-claim deeds in the chain of title. He said "they treat them as if they don't exist." It didn't make any sense to me, so I did a little digging. I think I understand the logic of the insurers' position, but it seems like a huge problem that Texas really needs to address.

Source of Title Blog ::

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.

For example:

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.




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Categories: Abstractors, Attorneys, Risk, Liability and Claims, Texas Legislation, Title Problems

1355 words | 26917 views | 4 comments | log in or register to post a comment


QC Deeds and After Acquired Title

QC deeds are at odds in some states with the tenets of After Acquired Title, also.  I've  heard that a qc deed creates a cloud on the title. 

Sometimes a party who has no interest in a property, like a spouse, will use a qc deed to alienate future interest priior to closing when the other spouse is buyihg property.  The problem is that qc deeds, unlike warranty deeds, do not or may not convey after - acquired title.  

If the qc deed is done prior to the titling spouse obtaining title, the other spouse then conveyed nothing as there was nothing to convey at that point.   You might check Texas on this one.

 
by john gault | 2011/06/09 | log in or register to post a reply

Many title insurance companies will insure after QC in Texas - it depends on the facts

Robert, very good research and post.  But, many qc deeds are insured in Texas.  Yes, title underwriters do not like them but they will insure them in some corcumstances.  For instance, if there really is consideration paid for the purchase.  This happens often when the seller is a government entity or railroad. It also happens when the seller is an estate or otehr entity that acquired title by operation of law and is represented by counsel.  It also happens when the seller or his counsel is from out-of-state.  None of those situations are ideal when it comes to insuring title but they happen.

Fortunately, in Texas we do not insure, and cannot insure, marketable title.  But we can insure title with a QC in the chain if it meets our underwriting standards.

So, check with a title company and if they say no, check with another one.

 

 
by Robert Philo | 2011/06/13 | log in or register to post a reply

Quit Claim Deeds

Robert, I have work as an Title Examiner for a title insurance company in Texas for 10 years and we had 3 underwriters and neither one of the three would insure with just a Quit Claim Deed, since they do not convey title only whatever interest they had or may have had in said property. 

 
by David Keeling | 2011/06/13 | log in or register to post a reply

Deed Without Warranty
        Great info. Another option in Texas, if avoiding quit claim deeds, is to use a Deed Without Warranty. Here is a brief summary of the deed options in Texas: DISCLAIMER: This is not legal advise and should not be relied on as legal advice.  
(1) Quit Claim Deed – Seller does not promise to have title to the property. Seller conveys to buyer whatever rights seller has in the property, but seller does not profess that title is valid or that there are no encumbrances.

(2) Deed without Warranty – Seller promises he has title to the property and conveys that title, but he makes no warranties as to title.

(3) Special Warranty Deed – Seller promises he has title to the property, conveys that title to Buyer, and warranties that he (i.e. seller) has not personally done anything to adversely affect the title being conveyed (for example, seller did not previously sell the land to someone else or grant an easement to someone else).  Seller does not make any warranties about what prior owners of the property may have done that could have effected the chain of title.

(4) General Warranty Deed – Seller promises he has title to the property, conveys that title to Buyer, and warranties that no one in the chain of title (all the way back to the first owner) has done anything to adversely affect the title being conveyed.

 
by Kathy Sharp | 2012/05/30 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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