DOES USING A WASHINGTON QUIT CLAIM DEED NEGATIVELY AFFECT TITLE INSURANCE?
Question: I’m reading a real estate investing book and the author, who is an attorney, says that if a person were to quit claim the property say from their personal name to their LLC, that they would lose title insurance on it. Is this true? What about using a warranty deed?
Answer: In Washington State, as long as there is a deed for no consideration into an entity where the ownership is exactly the same, title insurance coverage would still be active. The type of deed does not matter. According to the title policy language, the term “Insured” is defined as “successors to the Title of the Insured by operation of law”, “successors by dissolution, merger, consolidation, distribution or reorganization”, and “successors to an Insured by its conversion to another kind of Entity”.
Keep in mind that title companies are willing to issue an “Additional Insured Endorsement”. However, there is a problem if the original policy is an Expanded Homeowners Policy. They cannot insure this type of policy if the owner is an LLC. There are exceptions to the rule, though, and the title underwriter may indicate an Endorsement to the Policy to continue coverage if this is the case. The cost for a modified “Additional Insured Endorsement” is currently $100.00 plus tax.
Although it won’t matter in this case, by using a warranty deed versus a quit claim deed, the title insurance would continue to cover a grantor in a sale transaction should the buyer come back and pursue a default under the warranty aspects of that form of deed. Under a quit claim deed, their insurance would be non-existent. It won’t matter because in this case the Grantor and Grantee are the same. There are other concerns if an earlier type of policy (1992) was used because the language would be different.