If you have real estate in California that you want to convey or transfer to someone, you can use either a quitclaim deed or a warranty deed.
The difference between the deeds is substantial, so it's important to know which to use for your particular situation.
In California, Warranty Deeds Are Called Grant Deeds
A warranty deed is a type of deed in which the owner guarantees he has good title to the property and the property is free and clear of liens and other encumbrances. Because a warranty deed shows that the grantor, or person making the transfer, actually owns the property, it is the type of deed most often used in California real estate transfers. If a problem should arise with the property, such as the buyer, or grantee, discovering there's a lien on the property, the warranty deed gives the grantee the right to sue the grantor.
California uses the term "grant deeds" instead of warranty deeds. Because grant deeds vary in format from county to county, make sure you get a grant deed used by the county where you are filing, which should be the county where the property is located.
Quitclaim Deeds in California
A quitclaim deed, unlike a warranty deed, doesn't provide any guarantees that the grantor actually owns the property free and clear. The grantor can only give you what he owns, so if he owns half of the property, he can only convey his half. Anyone can give someone a quitclaim deed, but if the grantor doesn't actually own the property, the deed is worthless. As the grantee of a quitclaim deed, you don't have the right to sue the grantor for damages, making a quitclaim deed risky.
Grantors generally use a quitclaim deed in specific situations, such as transferring property from a parent to a child, transferring property to a spouse in a divorce, or transferring the property into a living trust. You can also use a quitclaim deed to transfer property to an LLC.
The key issue with a quitclaim deed is that the grantee should have absolute trust in the grantor. If not, the grantee shouldn't accept a quitclaim deed. As with grant deeds, forms for California quitclaim deeds vary from county to county, so be sure to get the form from the county where the property is located.
How to File a Quitclaim Deed in California
Unless there are tax exemptions, which is a complicated subject not covered in this article, filing a quitclaim deed is relatively easy in California. First, you need to make sure you fill out the quitclaim deed properly and get it notarized. Next, take the quitclaim deed to the County Recorder's Office. Make sure to file a Preliminary Change of Ownership Report and a Documentary of Transfer Tax or a Notice of Exempt Transaction. Get the forms from the county where the property is located. You can find the forms in the County Clerk's Office, Recorder's Office, or Assessor's Office.
The Cost of a California Quitclaim Deed
As in other states, a quitclaim deed in California comes with filing costs, which vary by county. As of 2018, for example, the costs in Los Angeles County include a base fee of $15 and additional fees of approximately $87. Additional pages filed are $3 each. The cost is reasonable compared to fees in other states.
Quitclaim Deed Tax Implications in California
Like other deeds, quitclaim deeds require payment of all back taxes before the grantee can receive the property. If no money changes hands between the grantor and the grantee, a gift tax applies and you must file a United States Gift (and Generation-Skipping Transfer) Tax Return (Form 709). There is no gift tax when a spouse transfers the deed to the other spouse or when the deed is placed into a trust. There is a documentary tax in California, but there's an exemption if the transfer was the result of the grantor's death.
There are many exemptions to real property transfer taxes, but they have to appear on the quitclaim deed for you to qualify for the exemption. You may want to discuss your real estate transfer with your tax adviser. Otherwise, you could be stuck with capital gains taxes if you try to sell the property at a later date. It's also possible that could miss some exemptions.
How a Quitclaim Deed Effects a Mortgage
A common question is whether a quitclaim deed removes the grantor's name from the mortgage. The rule is that the mortgage does not follow the quitclaim deed. Thus, if you have a mortgage and you transfer your property by quitclaim deed to someone else, you're still responsible for paying the mortgage. This doesn't mean the grantee can't assume the mortgage or refinance, but the grantor and the grantee must work together to resolve this issue. Otherwise, if you're the grantor, you're still responsible for the debt on your mortgage.