Quit Claim Deeds in Florida – A Precautionary List
Quit claim deeds in Florida are easily the most commonly used transfer deeds in real estate property. They do not require formal title reviews, which essentially means ownership of the property may be changed without a formal verification of the transferor, the existence of liens and encumbrances, or any potential tax implications for the parties. Consequently, they carry a laundry list of potential hazards for both the transferor and transferee.
Florida Quit Claim Deeds Considerations
The following is a list of considerations to discuss with your attorney prior to executing quit claim deeds in Florida:
- Florida’s Homestead Tax Exemption – Protection offered by the Florida Homestead laws are potentially the most important of those affecting a Florida homeowner. However, transferring property via a quit claim deed without first knowing which of the current homeowners qualify for the exemption may lead to the exemption being lost entirely or significantly reduced as a result of the transfer. It may also be affected by whether the transferee resides in the subject property.
- Property Tax Assessment – A transfer via quit claim deed may also lead to a reassessment of property taxes resulting in an increased amount owed each year based on an increased property value.
- Title Insurance Policy Cancellation – Title insurance provides current owners with invaluable protection from prior encumbrances, liens, and unresolved permitting issues. Transferees may be comfortable accepting ownership of property from family members via a quitclaim deed knowing that a title insurance policy was once issued subsequent to a comprehensive title search. However, transferring property to another owner, or even adding subsequent owners, may negatively affect or void an Owner’s Title Insurance Policy. To learn more about the different types of title insurance policies, review our Title Insurance Primer
- Florida Transfer Taxes (aka Documentary Stamp Taxes) – Transferring property triggers the assessment of Florida Transfer See Fla. Stat. § 201.02(1)(a) While there are a few exceptions, most transfers will result in either party owing transfer taxes calculated on the amount of any outstanding mortgage or the fair market value of the property at the time of transfer. In fact, taxes may be due on a quit claim deed even when the property is transferred between spouses. With such transfers, if the property is mortgaged, then tax is generally due on half of the outstanding balance. If there is no mortgage when the property is being transferred between spouses, or if the property is being transferred as a result of a divorce, transfer taxes are generally not due. For more information on the calculation of transfer taxes in Florida as a result of executing a quit claim deed, see the Florida Department of Revenue’s Documentary Stamp Tax guide.
- Liability –Adding an individual to a deed results in that transferee owning a portion of the subject property. If such ownership is not protected by existing law, such as Florida’s Homestead Protection, the transferor may find their interests being affected by the creditors of the transferee. Further, if a transferee files for bankruptcy or is otherwise obligated on debts that allow a creditor to attach to the subject property, a transferor may lose the property entirely.
- Homeowner/Condominium Association Violations –Oftentimes, an association’s regulations place rigid restrictions against transferring of property or the need for approval prior to such transfer. If the Association’s requirements are not met, it may prohibit the transfer.
- Other important considerations – Additionally, the parties to a quit claim deed transfer should consider the adverse effects on certain governmental benefits such as Medicaid eligibility or social security payments. These benefits may be significantly reduced or eliminated altogether as a result of a quit claim deed transfer. Also, improperly transferring property, particularly homestead property, may make probate inevitable upon the death of a current owner. Finally, certain transfers via quit claim deed may require the transferor to report it to the IRS as a “gift”, thereby resulting in unintended tax consequences.
While these items are not an exhaustive list, they clearly illustrate the serious complications that may arise if a property is transferred via quit claim deed without a comprehensive title search and counsel of an attorney.
Many see quit claim deeds as an easy, do-it-yourself remedy to their estate planning or property gifting objectives. But the reality is anything but that! Transferring property via quit claim deed without consideration and competent guidance of how to handles these complications may lead to far more problems than the original owner anticipated.
To ensure you are adequately protected, it is always best to conduct a title search and follow the guidance of your attorney – even when handling transfers between family members!
Contact us to see how we may be able to assist and guide you with your property transfer matter.