When buying a home, there is a lot at stake. "What is a warranty deed?" is probably the most important question to ask when arranging your mortgage or title insurance. After all, it's probably the biggest purchase you are ever going to make in your life. The last thing you want is to claim your property title and have the bank come around and question who has legal rights to the property or land. That is why it is essential to know about special warranty deeds.
It is an important contract that protects your home against third-party claims and future claims, even though it might just seem like one more sheet in your stack of mortgage paperwork. Keep reading to find out more about what a warranty deed is and how it works.
There is a grantee and grantor when transfer property transactions take place. These can be businesses, family members, or individuals. The grantor (seller) owns the property free of encumbrances, judgments, liens, or outstanding mortgages, and the warranty deed is a legal document that promises or warrants that statement.
In other words, the right to ownership can be transferred to the buyer because the seller has the legal right to do so.
How Warranty Deeds Work
A special warranty deed does not mean you now have proof that you own the property. Instead, it means no one else legally holds or is owed money for the home, and a separate legal entity can guarantee that. Until the title is transferred to you, you don't own the property.
The transaction date, names, legal descriptions of the property, parcel number, details, and addresses of all parties involved need to be noted on the real estate document. After that, the special warranty deed needs to be filed and notarized with the county or city for keeping real estate records. It is delivered to the grantee at the real estate closing.
Types of Warranty Deeds
Here is a closer look at how each type of warranty deed works.
General Warranty Deed
If you are looking for the highest level of protection for the buyer, a general warranty deed offers this. In the case there is a breach of the warranty deed, something happens without them knowing, or at the time, they didn't own the property, the seller is responsible.
According to the court of law, you can expect the following guarantees from a general warranty deed:
- The seller legally owns the property and has the legal right to transfer it
- No outstanding liens, outstanding mortgages, or other claims by a creditor
- The grantor warrants a transfer of the property to the grantee
- A clear title is owned by the grantor, which means that if there is a breach of the warranty, the grantee is entitled to compensation from the grantor
Special Warranty Deed
A general warranty and a special warranty deed guarantee a similar thing, except a special warranty deed only applies to a specific time frame. A special warranty deed guarantees that the current seller had no third-party claims against the property while owning it, and it confirms that the title is in the grantor's name.
The special warranty deed does not secure you from third-party lawsuits before the seller receives the title. With commercial real estate transactions, these types of warranty deeds are most commonly used as a legal description.
When looking to protect against other claims or potential liens from the county clerk's office, it is crucial to explore title insurance. Whether you are using a special or general warranty deed, the title company does the research ahead of the final sale to confirm there aren't any possible breaches before transferring property.
A landowner could sometimes use a grant deed to protect themselves during real estate transactions in place of a limited warranty deed. Essentially, protections are offered by grantor warrants: There are no liens or restrictions, and no one has a claim to the land. However, additional claims or claims prior to the grantor's ownership are not protected by a grant deed, so be aware of that when looking at future covenants.
How to Get a Warranty Deed
When attempting to get a title insurance legal document or a mortgage, the buyer generally needs a warranty deed to proceed with the purchase securely. Bear in mind, however, that all real estate transfers, including purchasing a home, could be something like a transfer title from one family member to another.
It is an excellent idea to get a warranty deed if:
- You want to buy or sell real property as a business owner
- You want to transfer ownership of the property to a trust
- You are finalizing the purchase of a property with an individual
- You are selling or buying a property and want to be guaranteed against title defects
A real estate lawyer can help buyers with this as they require a warranty deed for the transaction to take place. It pays to use professional help as the warranty deed process can be rather challenging for the rightful owner to navigate.
However, many warranty deed templates can be found online or through local realtors' offices in the grantor's interest. Please keep in mind that both parties need to sign and notarize the files with the county clerk's office for them to be official. In most cases, the recording fees are added to the loan closing costs, and the lender sends off all the mortgage documents go to the county recorder's office.
The grantor receives a copy for their records, and the grantee gets the original documents once all of them have been recorded.
Quitclaim Deeds vs. Warranty Deed
A quitclaim deed and a warranty deed are pretty similar, although a quitclaim deed is not interchangeable. If the grantor gives up their legal interest in a property, a quitclaim deed generally only states this. It does not guarantee other entities have an interest in it.
There is not much safeguarding for the grantee with a quitclaim deed, so it is mainly used when both parties have already established trust. In the case the property transfer is done between family members, a quitclaim deed can be used without legal advice.
Deed of Trust vs. Warranty Deed
The deed of trust is another document that you might confuse with the warranty deed.
When taking out a loan to finance a home purchase, you either need to sign a deed of trust or a mortgage contract (but not both). Until you have paid the legally binding terms of your loan, the deed of trust states that the trustee holds legal title to the property. If you don't pay back your loan, the act of faith secures the real estate transaction and designates a third party to handle the foreclosure process.
Deed In Lieu
When mortgages are defaulted by borrowers, the property is sometimes transferred to the lender through a deed in place of foreclosure to avoid having their credit history foreclosed. Foreclosure takes a long time, hence why this deed is significant to the lender. It can also help deter legal fees, which could make the entire process quite expensive.
The worse thing that can happen during the foreclosure process is that the house can sit vacant, attracting squatters and looters. It could also face damages from the property owners since they're aware that they are about to get evicted.
Special Purpose Deed
Those acting as official trustees to make property transfers without incurring personal liability need to make use of a special purpose deed. These special-purpose deeds are often used in a court proceeding and can come in handy if you are in a difficult situation with the seller or property owner. Included in this category is a deed in lieu, a special-purpose deed that is commonly used in residential real estate transactions.
FAQ's About Warranty Deeds, Title Searches, and Title Insurance
A title is an abstract term defining property rights, while a deed is how property ownership is transferred. It is good to note that you might need assistance in making sense of these legal distinctions and guidance on how each document or process is used.
How Does a General Warranty Deed Protect Grantees?
The disclosure and guarantees in general warranty deeds mean the former can be held responsible for a title defect. Overall, the new owner can use the deed to claim compensation or payment for issues about the property in question. Former owners could be brought into a lawsuit if a third party has filed a claim against the title.
If the claim is successful, the grantors are responsible for any liabilities and costs that you might have incurred.
Do I Need a Title Search and a General Warranty Deed?
Virtually, all lenders require a title company to complete a title search where public records are examined for any errors or issues. In short, you do need to perform a title search and get a general warranty deed. It is an excellent idea to verify that the details provided within the general warranty deed are accurate and reliable.
Remember the house secures the mortgage loan, so if there have been missed payments or no payments at all, that could mean trouble for the buyer. If the home is substantially devalued or lost, the collateral could mean nothing to lenders.
Do I Need Title Insurance with a Clear Title Search and a General Warranty Deed?
The simple answer to this is yes, you do. Remember, what your home means to you and your family is probably the most significant thing, both emotionally and financially. Unpredictable results can come from real estate laws combined with municipal or state laws, which makes this part pretty overwhelming.
While a deed may guarantee indemnity, if the former sellers are dead or bankrupt, there is no point in filing a lawsuit. Title insurance is for someone who needs protection over a broader range of potential claims because the general warranty deed fails on this behalf. This warranty deed protects against threats from the seller's side, instead of government regulations, zoning codes, or third parties.
Almost every lender requires titles insurance that names themselves as beneficiaries to cover repayments for services provided. If you want to add a separate policy naming the current owner as the beneficiary, the costs involved are typically low. While shopping for title insurance, be sure to ask title insurance companies about this cost, or you might end up with additional fees you are unwilling to pay.
However, it is also possible that the seller could pay for the policy for your benefit; this is known as a seller concession.
Whether buying or selling a home, it is essential to have a warranty deed to protect both parties. As a buyer, you need to demand a warranty deed to protect your hard-earned cash.
Buying a house is the most significant investment you are ever going to make, and a warranty deed guarantees you can avoid the most problems surrounding purchasing your first property.