There’s plenty to think about when you decide to buy a home, and it’s easy to get distracted by so many things, like your plans for painting, remodeling and furniture, or what you might do with the landscaping. Before your head starts soaring into the clouds with all the possibilities, be sure you know all you can about the financial transaction you’re entering. For most people, it’s the biggest one they’ll ever make. Though not every homebuyer will elect to purchase a warranty deed, understanding the concept and what it can offer in terms of ownership and property rights is an important factor to consider before finalizing your purchase.
Warranty deeds transfer legal property rights from seller to buyer. They offer the highest level of legal protection for purchasers in terms of title rights. They’re an excellent choice when little is known about the seller, particularly if you or your Realtor suspects the possibility of a title claim on the property, if you just want additional assurance of its history, or if you’re considering mortgage financing or title insurance, which is recommended. Still, it’s not uncommon for a lender to require a warranty deed for any property it finances as a general policy. In addition to transaction dates, names of parties involved, property descriptions and signatures, warranty deeds usually require the official stamp of a notary. Read on for more information about how a warranty deed can offer an additional layer of protection for residential homebuyers.
What the heck is a warranty deed, anyway?
Designed to protect the legal rights of a homebuyer upon purchasing a home, a warranty deed (sometimes called a general warranty deed) is a legal document that declares the purchasing party as the rightful owner. It also states that the home and property are not subject to any judgments, encumbrances, mortgages, liens or any other legal claims of ownership by third parties. This means that the new owner is purchasing the home in good faith, and that if any claims such as these should arise, the seller is legally responsible for not having disclosed them to the buyer. Under the warranty deed, the seller is liable and the buyer is protected if any title defects arise.
What are the main components of a warranty deed?
Though components might vary between states, most warranty deeds guarantee legal clarity of the property title for the purchaser, confirming the identities and addresses of the seller and buyer, along with detailed descriptions of the property and sewer lines, easements and any other relevant facts. A warranty deed will also typically include words of conveyance (describing the transfer of ownership) and proof of consideration, which names the purchase price or explains how the property was gifted, meaning a quitclaim deed (another version of a warranty deed) is used. More on that later.
How exactly does a warranty deed work?
In addition to the scenarios we’ve described above, a warranty deed could be required when buyers need financing for mortgage insurance or title insurance (more on that to follow). Warranty deeds work by guaranteeing ownership for the buyer as well as all legal rights that come with it. They also guarantee that the property has no other claims on it, that the title would supersede any claims that could arise, and that the seller will ensure the buyer’s right to the title and property if anything does arise. They even clear buyers from liability for unpaid code-violation or HOA fees. If problems do occur, the warranty deed legally enables the buyer to sue the seller, who is made legally responsible for the transition of ownership.
What is a special warranty deed?
As opposed to a general warranty deed or warranty deed, a special warranty deed, sometimes called a grant deed or limited warranty deed, isn’t actually all that special. In fact, limited is a better word because this version of a warranty deed is less beneficial to the buyer, only guaranteeing a lack of title issues during the most recent period of ownership. It offers no protection for any unresolved claims or liens that could remain outstanding that originated before the most recent owner. Often used by banks for commercial real estate transactions when ownership periods are expected to be more brief, special warranty deeds offer buyers less protection because sellers are only liable for the timeframe in which they owned the property.
What is a quitclaim?
Like a warranty deed, a quitclaim deed (sometimes called a non-warranty deed or special-purpose deed) is a legal transfer of ownership that applies to a property, but this time with minimal legal protection for the buyer (or recipient) of said property. Unlike warranty deeds, quitclaims include neither legal warranties nor guarantees concerning the period that the seller owned the property and before that time. Property transfer-of-ownership scenarios, like divorces, inheritances, donations to trusts or businesses, or gifts between family members, often use a quitclaim.
In these situations, ownership is not in question or doubt, and quitclaims allow for a quick and easy renouncement of property claims (and liability) for those relinquishing them. Under quitclaims, the purchaser or recipient of the property in question is not protected if title issues were to arise, which is why a quitclaim would appeal to a seller who suspects there could be a title issue and wishes to avoid liability. A warranty deed offers buyers significantly more protection, but a quitclaim can be a quick and easy solution, particularly with trust among family members when a property with indisputable history is changing hands.
What is a deed-in-lieu?
Another type of special-purpose deed, known as a deed-in-lieu, is common in real-estate transactions. When a mortgage borrower defaults on a mortgage, they may transfer ownership of the property back to the lender using a deed in lieu of foreclosure. This option benefits the borrower by sparing them the impact of a foreclosure on their credit history; it also benefits lenders by helping them avoid the more complex, expensive and time-consuming process of going through an actual foreclosure. This substitution also prevents homes from sitting empty, and therefore avoids increased risk of damages from vandals, looters and squatters.
Title searches, title insurance and proof of ownership
Warranty deeds alone cannot always prove ownership of a property, and this is why title evidence is almost always required to back up the deed. Deeds are not foolproof, and buyers want to be sure that they avoid unexpected claims, even if the deed ensures the liability of the seller. Coupling a title search and title insurance with a warranty deed gives a buyer the most protection possible, with the greatest chance of uncovering any irregularities of ownership.
Whatever sort of deed you use in your property transaction involving a transfer of ownership, chances are great that a title search will be a non-negotiable requirement if a lender is involved. A title company conducts this search by reviewing public and legal records to ensure ownership and detect any outstanding liens, loans, taxes or judgments that might apply to the property. Adding title insurance to the title search will cover all costs that come up as the result of a title claim, if one is found. Most lenders will require a title insurance policy in their name, but home purchasers can add an inexpensive policy in their own names, too. Sometimes even sellers will cover the cost of either or both policies in what is known as a seller’s concession. Most buyers are well covered with a general warranty deed coupled with a title search and title insurance policy.
A warranty deed is a legal agreement designed to protect buyers when purchasing property — often from buyers who are strangers to the sellers — and as such they require sellers to make promises to the buyer. These legally binding promises are known as covenants and include:
- Quiet Enjoyment: Buyer’s right to a quiet possession of the property, without defective titles
- Further Assurance: Seller will provide all documents necessary for proof of title
- Against Encumbrances: Seller’s assurance that the property is free of liens unless noted
- Seisin: Seller assures that they have ownership and can legally sell the property
How to obtain your own warranty deed
Most buyers prefer to seek professional help and request a real estate agent’s assistance with obtaining a title search, title insurance and an official warranty deed. If you’d prefer to obtain your warranty deed without the help of a Realtor or title search company, be sure to do your own public-records research to determine definitively that the property you’re interested in is free from all liens, encumbrances, or other outstanding legal and financial claims.
If you’re confident this is the case, you can download an online template for your warranty deed. If you need help conducting your title search or determining the specifics of your state’s property laws, a property law attorney can help. A mortgage lender can also tell you more about this process and what options you have when it comes to protecting your ownership of a new property you’re thinking about buying.
Thanks for stopping by to learn about warranty deeds. We hope this post has been informative. While you’re here, you may want to read more, including our frequently asked questions about what a home warranty is and how it works, including what to look for in a maintenance plan.
The information in this article is intended to provide guidance on the proper maintenance and care of systems and appliances in the home. Not all of the topics mentioned are covered by our home warranty or maintenance plans. Please review your home warranty contract carefully to understand your coverage.