What Is A Warranty Deed?

When you find the home of your dreams, it opens a world of possibilities for you and your family. It’s hard to separate the joy and romance of buying a home from the reality that you are engaging in a legal exchange of ownership and property rights.

Now is a great time to start learning about how deeds work, but if you are actually facing a claim against the title of your property, you should contact your title insurance provider as soon as possible so that they can handle the claim on your behalf and provide you with legal advice.

A warranty deed is a legal document used when a piece of real estate is sold and the ownership is transferred from the grantor (seller) to the grantee (buyer). The form usually includes a description of the property and discloses all known encumbrances like easements, outstanding liens or judgments.

When using a warranty deed, the grantor guarantees that the property has no outstanding title problems and that they, the current owner, have the legal right to sell to the buyer.

When you enter the world of real estate, you will find that it has its own jargon – particularly where real estate and law intersect. It’s important to know exactly what each term means, including the other common types of deeds used in real estate transactions.

General Warranty Deed

A general warranty deed is the gold standard of property transfers. This type of deed is overwhelmingly used in residential purchases. Most lenders require a warranty deed for properties they finance. It offers buyers the greatest possible protection from future claims against the title.

For example, if two owners ago there were fines issued because of code violations, or the owner failed to pay HOA fees, as the new owner, you won’t be responsible for paying them after taking ownership of the property.

Special Warranty Deed

“Special” sounds good, but a special warranty deed is a less beneficial transfer of ownership to a prospective buyer. It guarantees there has been no encumbrance of the property during the grantor’s ownership of the property. It doesn’t make any representations for anything that transpired before their ownership.

These deeds are commonly used by temporary owners like banks who have acquired properties through foreclosure.

Quitclaim Deed

A quitclaim deed is used in transactions where ownership of the property is not in issue, like divorce, inheritance or transfer of ownership to a business or trust. One owner uses the quitclaim deed to renounce a claim they had on the property. In a divorce situation, the spouse who leaves the marital home with no future financial involvement must sign a quitclaim deed to avoid future liability.

Quitclaim deeds are also commonly used when family members transfer ownership to one another since both parties have already established trust and don’t need to worry about future title issues.

The quitclaim does not create any warranties or guarantees. It doesn’t even constitute proof that the grantor ever had a valid claim to the property. It simply says, “Whatever I had is now yours.” If “whatever” turns out to be nothing, so be it.

Deed In Lieu

When borrowers default on their mortgages, they sometimes transfer the property to the lender through a deed in lieu of foreclosure to avoid having a foreclosure on their credit history. This type of deed is significant to lenders because foreclosures take a long time and legal fees make them very expensive. Worse, during the foreclosure process, the house can sit vacant, attracting looters and squatters or it may suffer damage from property owners who know they are facing eviction.

Special Purpose Deed

Special purpose deeds are used in court proceedings or allow those acting in an official capacity to make property transfers without incurring personal liability. A deed in lieu is a type of special purpose deed and the only type common in residential real estate transactions.

A deed is how ownership of a property is transferred, while a title is an abstract term that defines property rights. Keeping that in mind might help you make sense of these legal distinctions and how each document or process is used.

How does a general warranty deed protect grantees?

The guarantees and disclosures in a general warranty deed mean the new owner can hold the former owner responsible if there is a title defect. If a third party filed a claim against your title, you could bring the former owners into the lawsuit.

If the claim is successful, the grantors must cover any liability you incurred and your costs.

Do I need a title search and a general warranty deed?

Yes. Not only is it a great idea to verify the representations contained in the general warranty deed are accurate, but virtually all lenders require a title company to complete a title search where public records will be examined for any issues or errors. Remember, the house is the security for the mortgage loan. If the house is lost or substantially devalued, there goes the collateral.

With a clear title search and a general warranty deed, do I need title insurance?

Yes, you do. Remember, your home and what it means to your family is probably your biggest investment – both financially and emotionally. Real estate law combined with state and municipal laws can yield unpredictable results. While a deed may guarantee you indemnity, the legal reality is there is no point in bringing a lawsuit if the former sellers are bankrupt or dead.

Title insurance covers a wider range of potential claims than the general warranty deed does. The warranty deed covers threats from the sellers’ side, instead of third parties, government regulations or zoning codes.

Virtually all lenders require title insurance that names themselves as beneficiaries. The cost, then, of adding a separate policy naming the owner as a beneficiary is usually low. Make sure to ask title insurance companies about this cost while you’re shopping for title insurance. It’s also possible that the sellers will pay for the policy for your benefit as a seller’s concession.

Getting a general warranty deed is your first layer of protection against title claims. Home buyers who supplement the propertydeed with a title search and insurance don’t need to worry about the threat of a third-party lien. Learn more about buying your next home in our Learning Center.