Quit Claim Deeds in REO Transactions

For those of you who are involved in REO transactions, you are probably well aware of the fact that REO sellers are insisting that buyers accept a quit claim deed, rather than a deed with warranties of title. The reason is simple. Lenders who acquire title through foreclosure do not want to be responsible for making any representations or warranties of any kind, including representations or warranties pertaining to the condition of the property. That philosophy appears to have now extended to representations or warranties concerning the quality of their title.

It is important to note that a quit claim deed offers no warranties of title whatsoever. It is merely an attempt to convey whatever interest, IF ANY, that the lender has in the property. It is also important to note that anyone can quit claim anything to anyone. For example, I can quit claim the Ringling Bridge to you. That does not mean you own it.  It merely means that I gave whatever interest I had in it.

The result is that it is absolutely critical that a buyer of REO property thoroughly research the title to the property, and obtain a title policy from a reputable closing agent. Herein lies the problem. Many reputable title companies will not insure a quit claim deed, or an REO buyer is forced to use the lender’s hand chosen title company to do the closing. Those title companies do not represent the buyer, have little interest in making sure that the buyer is getting good title, and will load their title policies with exceptions that basically gut the title coverage one would normally expect.

For these reasons, it is critical that a buyer of REO property attempt to control the closing process, or at a minimum, engage a real estate attorney to help insure that the title that is being given is good title. By accepting a quit claim deed, a buyer will have absolutely no recourse against the seller if title is found to be defective, which does indeed happen. 

As always, should you have any questions in regards to the foregoing, please consult with your local real estate attorney.


Berlin-Patten, PLLC


This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.  

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