Uninsured Transfers

This may seem like a very dry and boring subject, but I promise you that this information will save you a lot of time, worry and running around if you are intending to make a change to the ownership of real estate without going through a regular escrow.

The following examples are very common and usually result in an uninsured transfer. When I say uninsured I mean without benefit of title insurance.

Example: John Jones and Mary Smith bought a house together intending to get married; six months later an argument develops and Mary moves out; she gives John a properly executed quit claim deed in exchange for her equity. The quit claim deed is properly recorded.

Example: Helen Harrison is elderly and adds her son on title via a properly executed grant deed or quit claim deed. It is properly recorded.

Example: Harry and Bob own several pieces of real estate together. After a few years they agree to divide the property so that each has full ownership of some of the properties. Harry gives Bob a properly executed quit claim for his share in three properties and Bob gives Harry a quit claim for his share in two properties. The deeds are properly recorded.

Example: a brother and sister inherit a house. A year later the sister quit claims the property to her brother for $50,000.

Here comes the problem: Five years elapsed and the property owner sells or refinances the property. The title insurance company finds the uninsured deed; the title company is now being asked to insure two transfers; i.e., the one five years ago and the sale or refinance today. The title company will insist on an affidavit from the person who did the transfer five years ago and a statement of identity. The S. I. is used to verify that Mary Smith (example 1) had no judgments, child support payments or IRS liens at the time of the transfer. Perhaps Mary Smith moved to Alabama when she moved out of the property and has since remarried. This will hold up the current transaction until Mary can be located. Imagine if she hates Mr. Jones and refuses to sign anything.

In example 2, Helen died and this again causes a title delay and problems.

Example 3 is worse: Harry and Bob are still friends but Harry was married when he gave the quit claim deed to Bob; he is now divorced (and bitter). “Mrs. Harry” did not sign the quit claim – big, big trouble. If the original people are still available and, more importantly, still friendly, this just causes a delay; in other circumstances, an uninsured transfer can cause a substantial delay, resulting in the loss of a sale or the loss of a great refinance rate.

In the event that it is necessary for you to do one of these “do it yourself” transfers, check with your local escrow or title company, fill out the aforementioned statement of identity and affidavit. Keep these in your file when needed in the future.

Hopefully this article will save some of you a lot of future frustrations.

Peter Rosenthal
VIP Trust Deed Company