What is a warranty deed?

When you find the home of your dreams, it opens a world of possibilities for you and your family. However, it’s also important to remember 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’re facing a claim against the title of your property, you should contact your title insurance provider as soon as possible. They can handle the claim on your behalf and provide legal advice.

Let’s discuss what a warranty deed is, the common types of deeds and other frequently asked questions.

What is a warranty deed on a house?

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.

5 common types of deeds

When you enter the world of real estate, you’ll 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.

1. 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 a past owner was issued fines because of code violations, or the owner failed to pay homeowners association (HOA) fees, as the new owner, you won’t be responsible for paying them after taking ownership of the property.

2. Special warranty deed

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 cover anything that happened before their ownership.

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

3. Quitclaim deed

A quitclaim deed is used for transactions in which property ownership is not an 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.

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.

4. 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.

5. 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.

How do I get a warranty deed?

You can get a warranty deed from your real estate agent. The warranty deed should include all the important details surrounding the real estate transaction (names of people involved, appropriate signatures, description of the property, etc.).

Are there different types of deeds?

Before entering into a specific real estate transaction, you should be aware of five common types of deeds: general warranty deed, special warranty deed, quitclaim deed, deed in lieu and special purpose deed.

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’s 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. It’s a great idea to verify that the representations contained in the general warranty deed are accurate, plus virtually all lenders require a title company to complete a title search to examine public records for any issues or errors.

Remember, the house is the security for the mortgage loan. If the house is lost or substantially devalued, the collateral is compromised.

What are the pros and cons of a warranty deed?

Warranty deeds protect the buyer by guaranteeing a clear title and give the current owner the legal right to sell the house. For sellers, warranty deeds can delay the home selling process and come at an extra cost. Home buyers might also need to obtain title insurance even if they have a general warranty deed because title insurance covers a wider range of potential claims.

The bottom line: General warranty deeds offer important benefits

Getting a general warranty deed is your first layer of protection against title claims. The warranty deed not only gives the grantor the legal right to sell the home but also confirms that the property has no title issues or concerns. With various types of deeds for different situations, finding the right one for your specific real estate transaction is important in order to protect yourself and the home buyer.

Now that you have a better understanding of this real estate term, start your mortgage application today if you’re ready to embark on the home buying process.