The warranty deed is a legal instrument that conveys that the grantor guarantees that he holds the title to a real estate property. It also contains the formal promises of the grantor that the title is free from third-party claims that can challenge the ownership rights being acquired by the grantee.
It can either be a general warranty deed or a special warranty deed. In a general warranty deed, the grantor guarantees that the chain of title before and during his period of ownership is free of defects and that there are no third-party claims on the property. On the other hand, a special warranty deed guarantees that the title is free from third-party claims, but only for the seller’s period of ownership.
This article will explain a warranty deed, how it can be used, and all you need to know to complete a particular warranty deed form.
A warranty deed is a real estate instrument that transfers the seller’s legal ownership to the buyer with assurances that the seller has the authority to sell and that the title being transferred is free of defects (such as an unpaid mortgage lien, a court judgment, etc.).
It is suitable for real estate transactions where both parties are either unknown or the grantee has no knowledge and cannot thoroughly verify the property’s title at the time of acquisition. There are legal implications for transferring property using a warranty deed, but it provides the highest form of protection for the grantee. The executed deed must be submitted to the city or county office for approval and record-keeping.
How does it Work?
To use a warranty deed, the drafting party (usually the seller or their attorney) obtains the appropriate form required to be used in the state where the real estate is located. The form is filled in according to the guidelines of the state and the local records authority, e.g., format, paper size, number of witnesses required, notarization, etc.
Completing a warranty deed is not the final step in transferring property ownership to the buyer. It only proves that the seller has the authority to sell and that there are no defects in the title or third-party claims. The seller still retains ownership of the title until it is transferred.
The grantor will be liable for defending the property against potential ownership claims in a real estate transaction made perfect by a warranty deed. In the unlikely event that the title has a flaw (such as a mortgage, lien, or judgment credit), the grantee may sue the grantor for compensation. A grantee may still proceed to purchase title insurance after executing a warranty deed.
What is a Special Warranty Deed?
A special warranty deed is a type of deed that transfers the legal title of a real estate property to the grantee with the guarantee that the title was free of defects or problems during the time the seller owned the property.
The seller releases himself from responsibility for any previous claims or title issues that existed before the title was given to him by using a special warranty deed. Special warranty deeds are used mostly in commercial real estate.
The general warranty deed, which is more typical and covers the entire history of the property, is more expansive than the special warranty deed. The special warranty deed will not protect the buyer from any title issues that come up before the current seller’s ownership period. This limited protection implies that the buyer may receive a defective title and may be liable for future claims of ownership of the property or must pay any fines, debts, or other obligations attached to the property that were incurred before the grantor’s ownership period.
One way to improve the protection against old claims is to get title insurance on the property. The insurance company will investigate the history and title of the property before the transaction is finalized to ensure that there are no defects in the title received by the buyer.
When to Use it?
Though special warranty deeds are most commonly used in commercial real estate transfers, they are also used for residential homes in one specific situation. In the case of foreclosed, real-estate-owned (REO), or short-sold properties, the bank, creditor, or trustee is only willing to guarantee that the title was free of defects and claims of ownership during the period it had ownership.
Where it is used, the buyer has no protection from the seller against claims or defects that preceded the seller’s title. Therefore, the buyer must be ready to defend their title against such old claims.
For example, if a bank obtained a foreclosure order on a beach house in 2018 and wants to sell the property to Jules and Humphrey, However, the bank can only execute a special warranty deed and guarantee that the title is free of defects or outstanding claims from 2018 to date. Therefore, if the couple is comfortable with the arrangement, they will be responsible for defending the property against claims or defects before 2018.
Differences with Other Types of Deeds
Following is how a special warranty deed differs from other deeds
General warranty deed
The general warranty deed provides complete protection to the grantee against outstanding claims or defects on the title. Under a general warranty deed, it is irrelevant whether such a claim arose during the grantor’s period of ownership or before.
The general warranty deed provides the safest method of transferring the legal title of a real estate property. This is because the grantor makes a formal promise to defend the property against all future claims on the property where the claim arose as a result of a dispute or defect in the chain of title.
When to use it?
The general warranty deed is used where the grantor has a good title and is free from third-party claims. It is the most popular deed used for most residential real estate transactions where the grantee wants to acquire excellent and proper title to the property. This deed is also used where the buyer requires a formal guarantee that the grantor will be responsible for defending old claims on the property.
A quitclaim deed is a legal document that transfers the grantor’s title to the grantee without guarantees or indemnities to the buyer. The similarity between a quitclaim deed and a warranty deed is that both can transfer the legal interest of the grantor to the grantee. However, unlike a warranty deed, the quitclaim offers no formal promises that the title is free from third-party claims or defects. Consequently, if there are future claims on the property, the grantee will be responsible for the defense against such claims.
Thus, a quitclaim deed is more suitable for transactions where both parties are aware of the chain of title or where the grantor can be trusted, e.g., family members, living trusts, etc. The quitclaim deed also has a specific format and content to which it must conform, depending on the state’s guidelines.
When to use it?
A quitclaim deed is convenient to use where the parties are known to each other. The quitclaim deed is commonly used in a real estate transfer involving family members or trusted relations to add or remove an individual from the title document, to correct a defect on the title or change of name, to remove the cloud, to avoid the probate process, or to transfer the real estate to a living trust.
What should be Included in a Valid Special Deed?
Each state has specific rules or guidelines on how a warranty deed must be prepared and executed. It is critical to understand these requirements to avoid questions or refusals to register the deed by the city or county office. Generally, the following clauses are required to be present in a special warranty deed for it to be valid:
- Date: The deed form must carry a date for the transaction to take effect or be recorded.
- Names and details of the parties involved: The official names and addresses of the grantor(s) and grantee(s) must be included in the deed.
- Properties’ legal description: The description of the property to be sold must be mentioned in the deed. There are different methods used to identify properties in the U.S.: the rectangular survey, metes and bounds, and lot and block systems. A ‘metes and bounds’ description traces the property’s perimeter and highlights the point of origin. For example, “A certain tract of developed land situated in the Field of Colchester, close to the bayou….” An example of the lot and block system is a description such as “Lot 12, Block 1, OLD SURVEY, Greenport, Long Island, New York.”
- Habendum (Operative or Conveyancing Clause): This clause states that the grantor is willing to convey the property, and the grantee is ready to receive it.
- Consideration and receipt: Unless it is a gift (which must be stated), the deed must mention how much was paid for the transfer, and the seller must acknowledge the receipt of such consideration.
- Authority to sell: A statement that the grantor is legally empowered to sell the property should be included.
- A guarantee: A guarantee that there are no pending or outstanding claims on the property and that there are no defects, encumbrances, liens, or unsettled claims on the title during the period of ownership by the grantor.
- An undertaking: This guarantees that there are no defects or outstanding claims on the title from the period in which the grantor was the owner of the property. It will also contain the promise that, if a future claim arises against the above undertaking, the grantor will defend the buyer against such claims.
Special Warranty Deed Forms Templates
Several homeowners, grantors, lawyers, real estate agents, and even buyers have relied on vetted deed form templates to conclude their real estate deals safely.
This website has provided easy-to-fill templates for special warranty deeds that you can complete in a short time. With a vetted downloadable warranty deed form, you will spend less time and money preparing the deed and can also be assured that the standard clauses are included in the proper form.
Frequently Asked Questions
This is a legal document in a credit transaction that binds the guarantor as the personal security for a loan obtained by a borrower. This implies that if there is a default in repayment, the creditor may proceed to recover the outstanding payments from the guarantor.
A special warranty deed is a legal document used to transfer the ownership of the property to another party with the assurance that there are no defects, external claims, liens, or restrictions on the property during the seller’s ownership period. It also promises that the grantor will defend or reimburse the grantee for defending any claim arising from the grantor’s ownership period.
A special warranty deed only protects or undertakes to compensate the buyer against claims arising from the seller’s ownership period. But a general warranty deed guarantees that no one in the chain of ownership of the property’s title has a valid claim to the property, nor is there a defect in the title.