There are a few different ways to relinquish or transfer rights of ownership to real property.
The transfer of real estate from one party to another can be a pretty straightforward process that requires filing a quitclaim deed at your county recorder. The process can be a bit more complicated for property owners who are relinquishing rights to an investment asset to complete a 1031 exchange, though.
Let’s take a closer look at both examples.
What Is a Quitclaim Deed?
A quitclaim deed is a simple and efficient way to transfer ownership of real estate between two parties who share an inherent level of trust, such as family members or longtime business partners with aligning interests.
Trust is a crucial element of this type of transaction because the new property owner in the quitclaim transaction will inherit title to the property on an “as-is” basis. It’s similar to buying a used car from a private party – there’s no warranty involved in the transaction, and you buy the car for better or for worse.
Before heading down to the country recorder’s office to file your quitclaim deed, which you can get from your attorney or any number of free online legal resources, you’ll have to first name a grantee. That’s the person who takes over and retains rights to the property when you relinquish ownership. The person relinquishing their property rights is considered the grantor in a quitclaim transaction.
Next, you’ll complete a habendum clause, which is a description of the asset and includes a statement that the property is being transferred to the grantee without any restrictions. Since this clause typically starts with the language, “To have and to hold,” it’s also known by that name.
After signing and dating the quitclaim deed, you are ready to take it to your local county recorder to be filed, though it might be a prudent course of action to have your attorney review the document first.
There are several scenarios where using a quitclaim deed makes sense:
- Convenience. Married couples can easily add or remove a spouse from the title to jointly shared real estate. The same holds true when married couples divorce and want to change property ownership.
- Fixing title errors. A quitclaim deed is the most cost-effective way to update a title to correct an error such as a misspelling.
- Wills or gifts. Quitclaim deeds also are a cost-effective solution to remove yourself from a property title if you’ve gifted it to another party. It’s the same if you’ve granted property title to a relative or close associate in your will.
In each of these examples, though, note that the grantor and grantee are trusted parties linked by marriage or close familial relations. This close relationship limits the risk of issues arising with the title when relinquishing rights to an asset. In real estate transactions between strangers or unrelated parties, the grantor and grantee will likely use a warranty deed instead of a quitclaim deed because the former provides a much higher level of legal protection for the purchaser.
Relinquishing Rights to Real Property in a 1031 Exchange
Investors who sell an asset can defer capital gains taxes by rolling over all the sale proceeds into a replacement property. In this transaction, the disposed asset is called the relinquished property, and the new asset is called the replacement property.
While 1031 exchanges can be quite complicated since there are many strict IRS guidelines that must be followed and several timelines that must be met, the actual transfer of assets between parties is a pretty straightforward process for the exchangor.
This type of exchange requires the use of a Qualified Intermediary, who holds all sale proceeds of the relinquished asset and completes all the necessary paperwork to legally transfer title and rights of the relinquished asset to the buyer. Although the QI will complete all necessary paperwork, it’s still up to the exchangor to ensure documents are properly filed and recorded.
The Bottom Line
Transferring or relinquishing ownership rights to an asset between trusted parties can be accomplished with relative ease by filing a quitclaim deed at the county recorder’s office. Unrelated parties, meanwhile, will likely use a warranty deed since it gives the buyer much more legal protection. Relinquishing rights to a property in a 1031 exchange will be handled by your Qualified Intermediary.
If there’s ever any question of what to do during any of these transactions, be sure to engage the counsel of a legal professional with real estate experience to avoid any missteps.