A Special Warranty Deed is defined as a legal document used by a property seller (grantor) to transfer ownership and guarantee the buyer against any claims and liens on the property that may originate from the tenure the property was under their ownership.
The grantor, therefore, does not guarantee of the title is free of liens and encumbrances that existed before they acquired the property.
The grantor uses a special warranty deed or grant deed to prove they are the holders of the title to the property. Also, as far as they know, the property and title have no liens or third-party interests, and they are legally allowed to sell a property.
The grantor is thus protected from any defects in the title from before they took possession of the property. Consequently, the grantor is liable for any issues in the title or property that can be traced back to the period they owned the property.
A special warranty deed exempts the grantor from any issues in the title they may not be aware of. If a special warranty deed is used for a sale, it must be declared in the purchase agreement.
Other names used to refer to a special warranty deed are grant deed, covenant deed, statutory warranty deed, or limited warranty deed.
Special vs. General Warranty Deed
Another type of deed used in the selling of property is a general warranty deed. A general warranty deed will differ or resemble a special warranty deed in several ways. This article has discussed all the features of both types of deeds and how they are used in property purchasing and selling.
What are the warranties?
Warranty deeds are transfer documents used in transactions where a property has to be transferred from one party (grantor/seller) to another (buyer). The different warranties that a grantor/seller can offer the seller are; a warranty that the seller is the rightful owner and has total authority to sell/transfer.
Sellers can also guarantee that the conveyed property has no liens and encumbrances other than any that the seller has disclosed. Lastly, a seller can guarantee the buyer that they will defend the property title against any legal or financial claims even after the transaction has been completed.
The warranties offered by a special warranty deed are limited to a specific timeframe; when the current owner (seller/grantor) was in possession of the property. In contrast, a general warranty deed guarantees against any defects in the title that stem from before and during the grantor’s ownership tenure.
Special and general warranty deeds are not short of similarities. Both deeds prove the seller holds title to the property, has not already sold the property and is legally permitted to sell the property.
Both deeds guarantee that any omissions, errors, and issues in the title caused by the grantor are their responsibility. Both deeds will have to be signed and will often have to be notarized and filed with public records.
A general warranty deed differs from a special warranty deed in one key aspect – the timeframe covered by each document. A general warranty deed covers the entire property’s history, whereas a special warranty deed is limited to a specific time period; when the seller held title to the property.
In addition, special warranty deeds mitigate a seller’s risks, unlike a general warranty deed that exposes them to claims, liens, and encumbrances that they may even not be aware of. As a result, special warranty deeds are widely used in the residential property market, while general warranty deeds are popularly used with commercial property.
Pros and cons
A special warranty or grant deed is more advantageous than a general warranty deed because it allows the seller to protect themselves from specific defects in the title as it can be modified to fit different scenarios. Also, it is more advantageous as it obligates the grantor to claims or issues that they can account for. This can be essential for property bought through foreclosures.
Buyers will often request a general warranty when buying property deeds which increases the seller’s risks. The liability for the property’s entire history can result in loss of money and/or lawsuits.
The use of these deeds will often require the seller to pay certain fees and taxes. This can increase the cost of property transactions.
What to Include in a Special Warranty Deed
For a limited warranty deed to effectively meet its functions, basic information needs to appear on the deed. Note that the contents of the deed can be varied to suit the scenarios that would be applicable in the transaction.
However, below are the key components of a standard grant deed:
The full name should appear as it appears on the property title and other legal documents. The grantor identified in the document is obligated to offer the buyer any guarantees accorded to them by the special warranty deed.
The official name of the buyer must be written precisely as it is written on their identification documents. The identified buyer or grantee is the party legally permitted to claim any warranties stipulated in the document.
The property’s legal description must be input in the deed. The description should include details such as physical location, lot number, type of property, etc. The ownership of the property identified in the document is expected to be transferred from the specified grantor to the specific grantee.
A statement of transfer
A statement that declares that the seller intends to transfer ownership/title of the property to the grantee must be included. It indicates the purpose of the document i.e., transfer of ownership of the property.
Ownership declaration (warranty)
The seller must add a declaration that states that they are the rightful owner of the property on sale. In addition, they should clarify that they have the legal right to convey the property to the specified grantee. This helps in proving that the seller is the legal owner of the property and that there are no other parties with a claim to the title.
A warranty against any claims
The grantor must declare the property to be free-and-clear of any claims from third parties such as creditors, spouses, etc., during their ownership period. The warranties offered must be clearly and precisely stated so that there are no misinterpretations as to what was meant in case the document has to be referenced in the future. Any specific warranties the seller would like to add or remove should be declared and stated precisely.
A title warranty
A statement that declares the property’s title had no defects for the period they had ownership of the property should be added to the deed. The grantor also guarantees to transfer an error-free title as far as they know. The inclusion of this warranty ensures it is clear that the seller is protected from any defects in the title from before they owned the property.
Signature and notary acknowledgment
The deed must be signed by the grantor and the grantee in the presence of a notary public. Signatures validate the deed and bind both parties to any stipulations highlighted in the document. A notary public authenticates the deed and verifies that both parties signed the document willingly. The notary public signs a notary acknowledgment to declare that the document has satisfied state requirements within its jurisdiction.
Examples of Special Warranty Deed
Special warranty deeds are common among foreclosures, short sales, and real-estate owned (REO) property transactions. They are more common in commercial real estate transactions because ownership of such property will usually have been held by multiple owners, undergone several foreclosures, and other issues that can cause a defect in the title.
In estate transfers, special warranty deeds are used because, more often than not, the inheritor/beneficiary will typically have some level of knowledge about the property’s ownership history, which is often enough for them to take up ownership to the title comfortably. Also, in such situations, these deeds are befitting since the grantor will usually be a trustee of a living trust or the executor of the estate who in actuality never owned the property and, as a result, should not be liable to any defects in the title.
Mortgage lenders also use special warranty deeds to resell or transfer property obtained through foreclosures since they will often not have enough information on the property’s prior history to guarantee against any faults in the title or claims to the property.
Below are examples of property transactions where special warranty deeds were used:
A couple bought a four-bedroom house on a mortgage in 2007 with H&Deli Bank. After the financial crisis of 2008, they fell behind on their mortgage payments, and their mortgage had to be foreclosed on by the bank to recoup their money. The bank used a special warranty deed to sell the house to a new owner. The deed in this scenario guaranteed the new owner of any claims and liens from the time the couple bought the house up until the house was resold to the new owner.
A trustee of the Mayfield Trust has to sell the property after the passing away of the successor. The trustee uses a special warranty deed to sell the property to a new owner. The deed protects the trustee from any defects in the title or claims to the property, for, in actual sense, they never owned the property in the first place.
Following are some free downloadable templates for you:
Frequently Asked Questions
A quitclaim deed aims to transfer whatever interest the grantor has in the property without specifying the type of interest. Therefore, the grantor does not warranty against any claims on the property during and before their ownership period.
A special warranty deed is issued by the seller, while title insurance is given by a title insurance company. Title insurance guarantees that there are no prior creditors or owners who have an interest or claim on the property.
A non-warranty deed declares that the grantor has a claim, interest in the property, or something to transfer without offering any other guarantees. A warranty deed such as a special warranty deed declares that the grantor is the legal owner and is allowed to convey the property and guarantees against defects in the title and claims to the property that stems from their tenure of ownership. A non-warranty deed is sometimes alternatively known as a quitclaim deed.