When you’re buying a house, a signed deed is necessary to transfer ownership of a property. There are several different types of deeds that are used in real estate, including general warranty deeds, quitclaim deeds for property transfer between friends and relatives, and bargain and sale deeds.
In this post, we’ll discuss special warranty deeds. We’ll go over what they are and what they cover as well as when you would use one.
What Is A Special Warranty Deed?
A special warranty deed to real estate offers protection to the buyer through the seller’s guarantee that the title has been free and clear of encumbrances during their ownership of the property. It does not guarantee clear title beyond their ownership.
This deed does offer a level of protection to the buyer (aka grantee) in that the seller (grantor) warrants that there are no problems with the property that arose during the seller’s time of ownership. However, under this type of transfer, the seller is not liable for any liens or claims against the property that may have occurred before they purchased it. Any guarantees only extend to what happened during their ownership.
Special Warranty Deeds Vs. General Warranty Deed
If a buyer and seller are unknown to each other in a traditional real estate transaction, two of the most common deeds used are general warranty deeds and special warranty deeds.
From a buyer’s perspective, the best thing a seller can do is give you a general warranty deed. With this, the seller is guaranteeing that there are absolutely no problems with the title, whether they occurred during or even prior to their ownership. This can give you full confidence to buy because you know that should any claims against the property or liens arise, it can hold the seller legally liable.
Contrast that with a special or limited warranty. A special warranty deed only serves as a guarantee that there are no problems with the title outstanding from when the current seller owned the property. It’s possible with this type of deed that someone else could come along who had a claim to the property or a lien existing from some long-unpaid debt. If the property right was legitimate, you could be forced to leave the home.
One way to fully protect yourself against any liens or claims on the property that may come back to haunt you in the future is to get title insurance. If you’re buying a home with a mortgage, your lender will require you to get a lender’s title policy which pays off the mortgage in the event of title trouble coming up in the future. If you’re buying a home with a special warranty deed, you’ll also want to strongly consider getting an owner’s title policy.
When issuing title insurance, the insurance company does a thorough check on the history of the property for any outstanding issues, including judgments or liens, restrictions or existing leases, among other things. If it’s necessary, they’ll do a property survey to determine where property lines are and if anyone else is encroaching on or has the right to use a portion of your property. Finally, they prepare an abstract of title and title opinion. The abstract covers the full ownership history of the property. The title opinion is something written by the company stating that they believe the seller has absolute legal authority to sell the property, and they would feel comfortable insuring the title. If there are any issues that come up during the title search or survey, you can either walk away or make sure those are taken care of prior to closing the deal.
The key thing to know about an owner’s title policy is that it fully protects you in the event someone comes forward with a claim against the property you own. If, after the legal process plays out, the claim is found to be valid and it’s someone else’s home, you’re given the money to purchase a home of equivalent value as the policyholder.
When Are Special Warranty Deeds Used?
There are three main types of transactions in which special warranty deeds may be used. We’ll go over them and give explanations of examples when they apply.
- Estate transactions: In an estate transaction where the person responsible for administering the estate has nothing attesting to the history of the property prior to the owner who has passed, a special warranty deed may be issued. If John Doe passed on and all the executor knew was that John didn’t have any outstanding obligations that would create a lien on his property personally, the special warranty would cover the fact that the seller didn’t have any title issues, but not warrant against everything that happened with the property in the past.
- Commercial property transactions: In the sale of properties used in business, a special warranty deed is often given. A business is usually aware of any title issues that may have existed when they owned the building, but that knowledge doesn’t always extend to any previous ownership. When we talk about commercial transactions, these are between companies. If Apple sells a building to Microsoft, that’s a commercial transaction.
- Foreclosure: If properties are foreclosed upon for any reason, the authorities or investors selling those properties will generally only warrant that no new claims or liens have been made against the property since they took possession. It’s important to be particularly careful when you’re buying a foreclosure because you might have to do things like pay back taxes in order to remove the existing liens from the property. This is particularly true when buying a foreclosure because people who can’t afford to make the house payment often have other financial troubles as well, so it’s something to be wary of.
A special warranty deed is one in which the grantor is only guaranteeing that there are no outstanding claims or liens against the property arising from their ownership. They’re not giving any assurances about issues that may come up due to the actions of previous owners. For that type of protection, you need a general warranty deed. In those cases when a general warranty deed isn’t in the cards, you can protect yourself by getting an owner’s title policy from a title insurance company. Finally, special warranty deeds are most often used in estate transactions as well as those involving commercial properties and foreclosures.
When buying a home, it’s very important to understand what you’re getting when dealing with different types of deeds. We hope this has helped you understand the intricacies on a deeper level. If you’re looking to apply for a home loan, you can get started online or give one of our Home Loan Experts a call at (833) 230-4553.