A Quit Claim Deed and How Filing a Bankruptcy Might be Affected

Certified Quitclaim Deed

Certified Quitclaim Deed (Photo credit: douglas_coldwell)

Definition of a Quit claim Deed

A quit claim deed is a legal instrument by which the owner of a piece of real property, called a grantor, transfers his interest in the property to a recipient, called the grantee. The grantor quits his right to claim the property, thereby allowing the claim to transfer to the grantee.*

Unlike most property deeds, the quit claim deed does not contain any title covenant and makes no warranty toward the status of the property title to the grantee. The grantee is entitled only to what interest the grantor actually has in the property when the quit claim is executed.*

Furthermore, the grantor is not guaranteeing he actually owns the property at time of transfer, or if he does own it, the title is free and clear. Since it is possible the grantee might receive no interest in the quit claim, a loss may occur, and the grantee has no legal recourse to recover their losses. Also, if the grantor should acquire the property at a later date, the grantee is not entitled to take possession, because the grantee can only receive the interest the grantor held at the time the transfer occurred.*

Advantage of Quit Claim Deeds to Family Members

Most quit claim deeds are used in the United States to transfer property between family members as gifts. They are rarely used to transfer property from a seller to a buyer, but a quit claim can be use to transfer property from the same person. When a divorce happens in a marriage, the quit claim is sometimes used to grant the receiving spouse full rights to the property.*

Quit claim deeds may also be used in tax deed sales in some states. When a property is sold at auction, the auction can recover the original homeowner’s tax burden. The buyer may have to initiate a quiet title action in order to remove any clouds of warranty on the title.*

How Filing a Bankruptcy Might be Affected by a Quit Claim Deed

One man recently shared on a bankruptcy forum website he owned his house outright but owed other debt greater than the value of his home. He was considering filing a bankruptcy to take care of his debts, but he wondered how long he would have to wait to file a bankruptcy after making a quit claim deed to one of his family members. He wonder if a wait of two years was enough.

In effect, the potential filer was trying to hide an asset from the bankruptcy court before filing bankruptcy. Although his question is a legitimate question, his intention overrides any length of time before filing the bankruptcy. If his intention is to hide the assets from the bankruptcy court, the court trustee can make a case for fraud under existing bankruptcy laws. Technically, a bankruptcy court can look as far back as necessary to prove fraudulent intent. Therefore, it may be a poor decision in this case for the potential bankruptcy filer to make a quit claim.

For fraud, the bankruptcy filer can spend thousands of dollar in fines as well as going to jail. Bankruptcy fraud is a federal crime.

This particular bankruptcy filer needs to consult with an experience bankruptcy lawyer before filing his quit claim deed.

(* Rewritten excerpts taken from Wikipedia)

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