Absolutely consult with your tax advisor to determine how this whole thing will affect your taxes. And, do not quit claim until you have money in hand from her.

Could she purchase it from you at the same price you paid when she has the money from the tax refund?

Can you extend the escrow and transfer to her before it closes?

She will pay me the same as my cash outlay. I did her taxes and they are direct depositing into my bank account. I won't sign it over until I have the funds, so no worries there.

The bank (it's a foreclosure) wants to close by the end of this month, so I don't think her tax refund will have arrived by then. What's the benefit of transferring it to her before it closes? Assuming the bank would even allow the eleventh-hour switcheroo.

So is a quit claim deed the "right" way to go about this? If not, what is?

My understanding is once you quit claim deed, you give up the ownership of the property associated with the deed; at least it was what explained to me when I did one many years ago.

Why are you so anxious to transfer the ownership to her before closing? Could you close the transaction and sell it to her when her fund is available? Assume it won't cost much for the paperwork as this will be a FSBO transaction. Since you would sell her the same as your cash outlay, you won't have capital gain.

Or get an IOU from her, transfer (sell) the deed to her, let her to close with the bank ( not sure if you have the time to go through this with the bank), but it seems messier if she could not pay you back. I feel owning a deed is better than owning an IOU.

Hope to hear suggestios from professionals.

You, & especially she, need a lawyer.

Here, a quit-claim deed is *not* used to transfer title to a property but to clear clouds on title, such as instances in which one spouse is awarded the property I a divorce but never got the deed changed, or in which a second spouse lived in the house but is not claiming it as part of the community property.

& what if you get hit by a bus after you buy the house but before you deed it to her?

Please don't go into this mess without expert legal help.

A quitclaim deed is used to transfer ownership, it really can't do anything else. The only real difference between a quitclaim deed and a grant deed is that the grantor makes no claim as to their actual right to the property to begin with. The grantee gets your interest in the proprty without any warranty as to what that interest is.

Personally I would get a title search and title insurance on a foreclosed property. My attorney will do a cash close for $400. Someone might even pro bono it.

We're doing title work for this. The bank has reportedly already done the title work up to the point of acquisition, which is why they think they can close a week from now. And we will have title insurance. That brings up another question though: it would be an owner's policy, in my name, correct? So when I sell it to her, do we have to get a new policy? Throwing away a few hundred dollars? And another few hundred dollars on a lawyer to do a duplicate deal in a couple weeks?

Just trying to save this friend's scarce resources.

Yes, a new policy will need to be issued in the new owner's name. Within that short time frame, the title company should be able to issue the new policy at a discounted rate since the title work was done recently. It will be an owner's policy that is issued to you.

I would not get in the middle.

While I am only making assumptions about the sale price, I doubt title insurance will cost very much, it is usually less than $4/$1,000 of home. rrah is correct though, your insurance protects you, and it effectively ends when you sell the property.

This is a legal situation. Please consult a lawyer.

Would it work/be simple(r)/cheap(er) if we did the sale documents in both our names, and then I quit claim it to her when her refund hits my account?

Price is about $5K.

FYI, I have zero concerns (call it "willing to risk") about her paying for this house. My largest concerns are to avoid triggering additional/duplicate/wasteful costs or legal implications like I retain some sort of tax or other liability.

When is the closing?

Get advice. Why such a hurry? Why quit claim rather than just resell it to the person? What if this person changes plans and decides not to buy it from you? Please get advice. And, perhaps research secured transactions.

I will call a lawyer on Monday. Until then, I'd like to learn as much as possible if you're willing to enlighten me.

I don't know why quit claim instead of resell it; that was the reason for my OP. The realtor suggested that, but it sounded not quite right, so I came here to get educated. As I stated above, I'm trying to minimize unneeded expenses, without getting wrapped into something with unintended consequences.

Closing is by the end of the month, per the bank's preference.

I am perfectly fine taking the risk of the person changing their mind. That said, the risk is minimal. This is a family of 7 that's been living in a hotel room for the past 3 months. They are thrilled to be moving into a fixer-upper with 2 bedrooms and one bath. We just got back from a full walkthrough/survey of needed work, and I can't see them backing out.

Why in a hurry? We jumped into the offer last week in my name because it was the last day before the bank re-sold the properties to yet another bank, which would have pulled the house out of circulation for a bit. And it was the last $5K house in town (a couple others got snapped up in the past 2 weeks). And, as I mentioned, they're living in a hotel room.

No judging, and you seem like a kindhearted soul, but it seems odd a family without 5K to spend would get that kind of cash back in taxes. And, can a family that can't keep together 5K in reserve cash support the costs associated with home ownership? Good luck with it all. Sounds like a tenuous situation, regardless of the decisions made. 7 people in a 2 bedroom place sounds rough. And, if there are children involved, a 5K home may not be in the safest part of town.

Weedy acres, FYI, the IRS takes a dim view of someone's refund being deposited into another person's account. That's what fraudulent preparers do. Many banks will not accept a direct deposit of a tax refund into an account that does not have the taxpayer's name on it. If the return hasn't been filed yet, I strongly suggest that you find another way to get your money. If it has been efiled, then do not be surprised if the refund isn't direct deposited and a check issued instead.

To understand quitclaim deeds, you must understand what a deed is. Many people think a deed is ownership of a house, it is not. A deed is a claim of ownership in a house. Typically the buyer's claim doesn't change at all regardless of what type of deed is used (see big exception below). So there is essentially no difference between a sale with a quitclaim deed and a warranty deed, except for recourse. In a warranty deed transfer the buyers have recourse against the seller if the seller has no right to sell the house or a title defect becomes known. For most people this is remedied through title insurance and so often the defects are never brought back to the seller.

Quitclaim deeds are frowned upon because there is no warranty on them. We have gone through great lengths to provide consumer protections for buyers and quitclaim deeds ignore these. I could quitclaim deed the Brooklyn bridge, and assuming I believed my ownership valid enough to avoid fraud, the buyer would have no recourse.

Because quitclaim deeds are used as a notice of defect they are really hard to get title insurance on. However, title insurance will be limited to $5,000 (the transfer price) so that needs to be considered, if they plan on making improvements and the house increases significantly the $5,000 may not be worth dealing with. Their life will be easier with either a warranty deed or a grant deed but you will have some exposure.

The one big exception to quitclaim deeds being no different is timing. Quitclaim deeds transfer rights at that time. If an administrative or funding problem delays the actual transfer of ownership to you until after the quitclaim deed then you had no interest to transfer and later when you do get those rights they don't transfer automatically. You would have to do another quitclaim deed.

There are a number of legal issues. but if you are willing to front the money for the house, why not front it and gift her the money (my understanding is that you can gift more than twice that without tax issues) and then get repaid (though not through a direct deposit of someone else's tax refund)? I think I would rather take a $5K credit risk than the risk of getting stuck with a house or title problems on a house that would be sold even in foreclosure for $5K. I would expect some serious repair or deferred maintenance issues. Don't risk screwing up the title in addition to that.

OK, I talked to a RE attorney. His recommendation was to ask the seller to allow me to assign the purchase contract to her, and I could write a letter that would serve as proof of funds. That way the whole transaction would just put the house into her name from the start.

I called my agent. She said the seller won't allow purchase contracts to be assigned. No dice. She once again urged me to just get a title company to write up a quit claim deed and have it notarized and recorded right after the sale. She didn't seem to hear or understand my reservations about it.

Arggh!!

I am going to call a local title company tomorrow and ask them about it. I imagine they would be more expert than a realtor about the types of deeds and the ways to make this happen.

First, i want to commend you for DOING something so dramatic to change the fortunes of a family. But second, I want to share this sobering story in the NYT recently about how home ownership can deepen low income buyers' situation. http://www.nytimes.com/2016/02/21/business/dealbook/market-for-fixer-uppers-traps-low-income-buyers.html?ref=realestate

I'm not suggesting not to go through with this, but perhaps be as aggressive as you can about protecting their interests, i.e., by obtaining warranties from the bank, seller, broker? Inspections? I don't know, but am interested. Again, I applaud you.

Kitasei: Contracts for deed are immoral for the most part, IMO. This house is definitely a fixer, and we'll be helping the crew fix and improve it, as their scarce funds allow. They'll own it full-out (no CFD), and we'll help them with repairs and renovations (we've got lots of renovation experience), so they won't end up on the streets as long as they keep paying their utility bills. Roof and foundation are good, so they should be ok.

I talked to a title company this morning. They didn't see any problem with a quit claim deed, but they charge the same ~$100 for a warranty deed, so I don't see any reason not to just do it the "right" way.

That said, they'd charge $600+ to issue a new title insurance policy, because they'd start from scratch. Any ideas on how to do that more inexpensively? Is going bare just a dumb idea? On the one hand, since a policy was just written, my friend should be confident it's clear. But OTOH, if they made a mistake that surfaces later, she's got no protection/recourse, because the title insurance was to my benefit, which ends when I sell her the house.

This just in: my agent said you don't need title insurance if you do a quit claim deed. True? Does this pass my interest in the insurance over to her?

Given that a title insurance policy was just written, can't you go back to that company and ask them for an update? It seems that the cost should be much less - they're not starting from scratch. I don't think title insurance is required for a quit claim deed but leaves new owner with no protection.

lawyer lawyer lawyer!

I guess a pitfall I would want to make sure to eliminate is the TOWN issuing a violation for something at some point that makes the house uninhabitable or unsaleable without an expensive correction. If they own it outright there is no danger of a lender foreclosing on them, but people can get buried by tax bills and violations. Is there a way to insure that the house being conveyed is now up to code, or that the seller is liable for any undisclosed violations? Just hoping you cross all the t's and dot the i's...

An example of an unforeseen condition that could sink an owner -- a buried oil tank. Does the seller guarantee there is none?

I talked to the seller's title company and they'll do an update of the policy for $250. That plus $100 for the deed looks like our baseline/backup plan.

I have a call in to the seller's attorney to see if we can add my friend's name to the deed prior to closing. That would save $250.

I know a few hundred bucks in the scheme of most RE transactions is deemed worth it. But we're looking at around $2000 in leftover tax refund for all renovations, so every $100 chips away at that. I'm trying to help her squeeze every last drop out of her scarce funds.

This town doesn't inspect owner-occupied homes. They do inspect rentals, which is how this one ended up on the market (landlord let them go to the bank rather than bring them up to city requirements).

Seller is not guaranteeing anything. It's REO, so an as-is sale.

Sylvia: what additional questions should I be asking a lawyer?

A few concerns and some statements...

First, what kind of deed are you getting? You should avoid upgrading the deed. If you are getting a grant deed you should avoid upgrading to a warranty deed. In this case, a quitclaim deed will protect you the most, but may limit the buyer's ability to quickly refinance or get title insurance.

Second, I wouldn't even get title insurance in this case. You are paying $850 to get $5,000 of protection...Title insurance covers up to the amount you paid for the house and not beyond. There are expanded title insurances that will cover more things but mostly they cover code violations and other non title related claims against use, such as a buried oil tank, but they are still limited to investment usually (although you may find one that covers improvements, but I have not done one).

Finally, all real estate sales are essentially as-is. No seller in their right mind is going to warranty against an undisclosed defect. There are disclosure rules to protect the buyer, but other than that, it is up to the buyer to check for violations.

P.S. What is done, is done. But for future reference this was not the best way to do this (please understand, I am being informative not critical, sometimes decisions need to be made before there is sufficient time to investigate). A conditional loan at closing would have been a lot easier, cheaper, and there would be less exposure.

The easiest and cheapest thing to do in this case is to not get a lawyer, decline title insurance, quitclaim the deed immediately after closing while getting the buyers to sign a promissory note at that time. Your exposure lasts only the time between closing and quitclaim, and you avoid spending a significant amount of money in fees and insurance, none of which will give you more $5,000 of protection.

You should lay out the entire scenario to a good, experienced real estate lawyer who represents the buyer or you and the buyer, not a title company attorney who represents no on but the title company, & ask that lawyer every single question you've posted on this thread.

I am a big fan of getting an attorney, but I am also a big fan of a cost benefit analysis. I have furniture that cost more than $5,000 and, believe it or not, I didn't consult my attorney before I bought it. Spending thousands of extra dollars to indemnify yourself against a $5,000 loss seems the height of insanity to me.

A quitclaim deed will convey your interest and absolve you from any title defect, and protect you from legal recourse against the owner (since you are no longer the owner). Some of the advice I gave earlier was based on homes a bit more costly. I think you should take the money you would pay for title insurance and attorneys and put it in an emergency fund that you administer for the owners. There is risk in doing that, but keep in mind you are only getting $5,000 of assurance.

Edit: If you really want an attorney call the local bar association and explain the situation. Someone will love this for their 50 hours of pro bono work, especially this early in the year.

Alright, I got hold of the seller's attorney and asked if we could put my friend on the purchase agreement. She said to have my agent write up an addendum and submit it, which sounds like a "yes." Agent said she'll do that Monday.

So now it looks like we will jointly own the property at closing, with title insurance. Then when she repays me, I'll quit claim the deed to her, and she'll keep the title insurance.

Bry, your point is taken about the potential value of the title insurance policy only being $5000 and the whole cost/benefit calculation. But, if I understand correctly, it would also cover any legal fees involved in a dispute, or the cost of perfecting the title. Those could run more. And while to you and me, $5000 isn't a big risk, to this friend, it's her whole house. So I'd still advise her to insure her interest in it for the $250 or whatever it's costing.

And I guess I'll write up an agreement with my friend that says "when you pay me I'll quit claim you the house" so that we're both protected/covered and so that it's all transparent.

Title insurance is typically good because of the research that title companies require before they issue the policy. In other words they often perfect the title before they issue the insurane. But the amount you are paying is crazy, I can get title insurance on a $500,000 cash purchase for $955.

Typically, title insurance will pay up to the price of the home (in this case $5,000) to perfect the title. If perfection of the title costs more than $5,000 (including attorney fees) they will write you a check and tell you to move out. Unless things have changed recently that is.

weedy--make sure you include something in the "write-up" that indicates she will quit claim it to you, if she does not pay the $5000 by a certain date.

If you are doing a quitclaim, you should do it immediately rather than after they pay you. Write a promissory note and file a lien if needed.

During the time that you are either owner or joint owner you are exposed to judgements. If the EPA shows up the day after you buy it and assesses a $50,000 clean up bill, then quit claiming the property will not remove the bill.

I am curious as what would be the best approach for Weedy to take if it is day one.

Well, just to close the loop on this, we're closing on Friday. Total out of pocket $5410, of which $750 is the owner's title policy, with a clear note that says "owner's title policy limit $4300." It's causing me pause, per Bry's advice above.

Tax refund is in my account, so I'll QC the house to her the same day. I did a bit of googling, and it looks like I can DIY the QC deed, notarize it, and record it myself at the courthouse, skipping the $100 title company fee.