There are many types of deeds: Quit claim deeds (QCD), warranty deeds, and referee deeds. But do the different types of deeds even matter? The answer is absolutely yes. The type of deed used, title companies involved, and title insurance you can purchase, can all save you from dealing with real estate deed fraud. As a real estate investor, I’m going to share a story of my own personal experience of a time when a QCD fraud scheme turned out to be a huge legal nightmare with an investment property.
This story aims to show you just how important it is for investors to make sure they have a warranty deed with title insurance when dealing with real estate investments and the risks of dealing with quit claim deeds.
What is a Quit Claim Deed (QCD)
A quit claim deed (QCD) is when there’s a transfer of a title to a property from one person to another with little to no buyer protection. The grantor, the person who gives away the property, gives their interest with no additional representation or warranties to the grantee, the person who receives it. In this case, the title is transferred without any amendments or additions. Essentially the grantor is selling their interest in a property only, with no representations or warranties. This means that there may be other claims of interest existing on title and if not identified before purchasing on a QCD, could result in a total nightmare.
Often, you’ll see “Selling on QCD Only” on properties listed on the internet for sale on sites such as Zillow. This was more prevalent years ago in Detroit, when property values were at all-time lows and water bills and back taxes were racking up. The idea of QCDs was for owners to be able to transfer their interest from themselves to another individual quickly without having to pay off any liens associated with the property.
The truth is, there are much safer ways of doing this as a purchaser. The number one thing my clients, friends, and family constantly hear me say is “absolutely do not buy a property on a quit claim deed and make sure to buy title insurance.” But why is this important?
Let me share with you a personal story of a time I dealt with a quit claim deed scam in Detroit, Michigan. This nightmare of a scheme ended up taking years to sort through and is a prime example of why you should avoid QCDs, always go through a title company, and purchase a warranty deed with title insurance. Disclaimer: Below is a true story of a deed fraud case with a property on Bluehill Street in Detroit, MI. Some real names have been changed or omitted for the confidentiality of all parties involved.
Bluehill, Detroit, MI
I met Monsieur David Francois digitally in July of 2021. He was introduced to me through a friend of mine in France. David lived in the south of France and, in 2017, bought a total of seven properties in Detroit, Michigan. He bought the properties from a former “turnkey” provider who was known for scamming and taking advantage of French investors in several midwest marketplaces. So, after a hard time dealing with the aftermath of the scheme he had bought into, David wanted to liquidate every property he owned.
When we met over email, he gave me the address of each property and told me straight up, “I have no idea what is going on in each house, but I would be willing to sell them to you for the right price.” I reviewed the addresses and got to work. First, I knew I needed to take a visit to each property to figure out what was going on, then I would make individual offers and, if he accepted, buy each of them.
As I suspected, house by house, I discovered a mix of squatter-occupied properties and completely deserted properties that needed a lot of work. I began to make offers and eventually had every property in contract and began to close on them.
The first six properties went smoothly, and we were finally ready to close on the last one. The remaining house was on Bluehill, and the closing was set for September of 2021. Two days before the closing, I conducted my final walkthrough with Brian, a close friend of mine and fellow investor from Florida, whom I consider to have started me in this business. When we walked through it, we both agreed that the rehab seemed straight-forward. I was sold, and I was ready to close.
On the day of the closing, I emailed David, telling him I was sad that this would be the end of our journey together. Both parties signed all the closing documents and I initiated the wire transfer. The closing was set to be finalized and completed.
While waiting for funding and to receive closing documents, I got a call from the Escrow Processor: “Hey Nader, we got your funds, but there appears to be an issue.” In my mind, I was thinking there was simply a large water bill that appeared when they reran the title before issuing the title policy and sending closing documents. But this was not the case. They said, “Nader, it appears that there is a quit claim deed that was recorded from David’s company to an individual in California.”
Quit Claim Deed Fraud
I told him that this couldn’t be. For starters, David doesn’t even speak a word of English. Secondly, the only people who were ever authorized to act on behalf of David’s LLC was myself, and any party David and I deemed fit. The title processor insisted on the existence of this deed and said they were going to send me a copy to review. We both got off the phone knowing and agreeing that some fraud had just taken place, but until I could see the quit claim deed and talk to David, I couldn’t make accusations.
Eventually, I saw the deed provided, and immediately I could tell it was fraud. Between the spelling errors and the fake “authorized signer” of David’s LLC, it was clear everything about this deed was off. I am still unsure how Wayne County even let this get recorded, but it indeed was recorded. I emailed David and told him everything that had happened and asked him to call me right away.
Feeling hopeless after all he had been through, David was unsure of what to do and asked for my help. Now, I will admit that while I wanted the house very badly, there was also a part of me that liked David and felt bad for all that he had gone through. So, I got David to lawyer up and decided to work side by side with the attorney to get as much evidence as possible proving this deed was fraud.
Notary Fraud
Looking at the deed, the first person I decided to target was the notary. Everything from the buyer’s name to the “authorized signers” name could be fraudulent, even the notary seal. Contacting the notary seemed like the logical place to start. Luckily, it was the perfect place to start. I tracked her down on LinkedIn and messaged her, asking her to call me because I needed some documents notarized. Okay, I lied. But if I came at her with the approach of accusing her of fraud, do you really think she would have called me?
Eventually, after multiple discussions with the notary, she caved and admitted that she was doing a favor for her friend and that she notarized the document without actually having this “authorized signer” present. Truthfully, that was all I really needed right there. But I wanted to get to the bottom of this. The notary led me to her friend, who had asked for this favor.
Let’s just call her friend “Samantha.” Samantha was the notary’s neighbor, who also said she was doing this for a friend. That all led me to the key person in this fraud. Let’s call her “Sally” for the sake of this story. I called Sally and asked her, “What in the world is going on here?” Her response was, “This sh*t happens in the city all the time; get used to it, kid, and if you have a problem, sue me.”
QCD Fraud Court Case
Anyone who knows me knows that I love challenges. So, Ms. Sally, challenge accepted! The lawyer started the civil suit and quiet title action on the property.
Years went by, and in this period, Sally rented the property out and began collecting rent from an innocent party mixed up in all of this confusion. Eventually, the notary who signed the fraud deed decided to help us out by signing off on an affidavit that stated that the deed was notarized without the signer present.
After many years of gathering enough evidence, the defense attorney told their client that they would lose and that it was better to settle by giving back the deed to the property. As much as I did not want to settle after all the years we went through this, I realized that it was what was best for David to just move on with his life. I explained everything to him, and he agreed to take a deed back on the property from the fraudulent party in exchange for dismissing the case.
QCD Fraud Resolution
Now, the deed has been signed and is in the process of being recorded. David and I agreed to a new price to get the property sold to me, and the nightmare is almost over. Except for one small piece, the woman who rented the house from Sally is currently living in it. We’ve had a few discussions with her, but we know that this will be a difficult obstacle and challenge to handle in getting this property to start cash-flowing.
To this day we are still working on this issue and it seems like a resolution is near. But the truth is, the years of legal issues, hassle, and fraud could have all been avoided if there was never a quit claim deed on the property to begin with.
The abuse of quit claim deeds in the Detroit, Michigan, marketplace has become an overwhelming issue. This is not the first time I have battled fraud, and I am sure it will not be the last. All we know is that when it happens, we do our best to help everyone involved in the situation. While devastating, it is not the end of the world, and there are ways to fix your situation.
Tips for Purchasing Detroit Real Estate
Here are Seven beneficial tips to help combat investment property fraud:
- Invest in title insurance. Always go through a title company and purchase real estate via a warranty deed with title insurance. A lot of people think that a warranty deed is sufficient, but in all honesty, drafting a warranty deed and a quit claim deed are actually similar. The difference is the header. The true protection is the title insurance policy you purchase at closing. This will ensure that if any issues arise on the day you purchase and before the said date, you will be able to submit a claim and get reimbursed for the full purchase price of the property.
- Watch your title. Keep an eye on your title. While it is true that most fraudsters target abandoned and pre-foreclosure properties, you can never be too safe. You can check your property recording history here. I recommend checking it every 3–6 months or so.
- Increase your premium. While a title insurance policy will cover your purchase price, it will not cover any funds you put into rehabbing the property. Consider asking the title company you are working with if it is possible to increase your premium on the policy for an additional cost. This way, you might be covered for a portion of any additional funds you put into the property afterwards.
- Understand human error. Titles, companies, and policies are issued by human beings, meaning they’re subject to human error. Going through a title company doesn’t ensure you are not being conned by the person selling to you, but it does mean you’re protected in the event that you are a victim of fraud.
- Avoid Quit-Claim Deeds. No matter how appealing the deal is, buying a quit claim deed from a stranger is quite risky and could result in a substantial loss. Anybody can draft and record a quit claim deed (or any deed) on a property and record it. If someone insists on not using a title company, run the other way. The seller may argue that they have back taxes or liens on the property and won’t pay for them, but if the deal is good enough, you can offer to cover it from your end at closing.
- Reach out to your title company if you suspect fraud. If you end up dealing with a fraudulent deed and have purchased title insurance, don’t panic. Contact the title company that facilitated the transaction and let them guide you through submitting a claim. Allow them to do their job, and let them show you exactly how they cleared the title. There are a lot of people who may claim ownership, but it is not your job to verify this; that’s the job of the title company you used to facilitate your transaction.
- Quit Claim Deed Fraud Next Steps: If you are a victim of quit claim deed fraud and you’ve bought a quit claim deed without title insurance, call a lawyer and submit a fraud deed claim to Wayne county. Click here for the deed fraud hotline, along with the website for claims.
The Midwest and the USA as a whole need to eventually change the way in which they record and transfer ownership of properties. But, for now, stay safe out there and protect your investment properties by choosing to buy real estate on a warranty deed with title insurance.
