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When you’re thinking of buying a home, you probably know that ownership of the home will be transferred to you through a deed. But did you know there are several types of deeds that all offer differing levels of protection against claims from third parties?
So, in order to know what level of protection you’ll enjoy, it’s essential that you understand the different types of deeds and the differences between them. In this post, we’ll delve deeper into what special warranty deeds are and when they’re used.
What is a Special Warranty Deed?
In real estate, a special warranty deed is a legal document where the seller of a property, also known as the grantor, warrants only against anything that happened during their physical ownership of a property. In simple terms, the grantor does not guarantee against any issues that existed before the grantor took ownership of the property.
As a result, in terms of a special warranty deed, the grantor is only liable for debts or other issues that happened when they owned the property. This may come into play if the buyer of the property discovers an issue, but the seller is able to prove the issue existed before they took ownership.
Purpose of Special Warranty Deed
A warranty deed provides the transfer of ownership or title to a commercial or residential real estate property from the current owner to the new owner. It comes with certain specific guarantees that are made by the seller.
These guarantees include that the property the seller transfers to the new owner is free-and-clear of ownership claims, outstanding liens or mortgages, or any other issues by individuals or entities against the property.
The main purpose of a special warranty deed is to limit the warranties given by the seller to issues that occurred only when the seller had ownership of the property. For this reason, it's also often referred to as a limited warranty deed. In simple terms, the special warranty deed is less comprehensive and offers less protection to buyers due to the time frame where it provides guarantees being limited.
Since this is a special warranty deed, it must contain additional information to the standard information that a general deed contains, which is what makes it special.
Both general and special warranty deeds need to contain the following information:
- The name of the seller, also called the grantor.
- The name of the buyer, also called the grantee.
- The physical location or address of the property.
- A statement that the grantor intends to transfer the property to the grantee.
- A warranty that the grantor is the rightful owner of the property and has the legal right to transfer the property into the name of the grantee.
- A warranty by the grantor that the property is free-and-clear of all liens and that there are no outstanding claims on the property from any creditors or other individuals.
- A guarantee that the title of the property will withstand any claims to ownership by third parties.
- That the grantor will do whatever is necessary to make good the grantee's title to the property.
In addition to the above, to qualify as a special warranty deed, the deed must also state that:
- There are no outstanding claims against the property that were instituted by any creditor or other individual during the grantor's ownership period.
- A guarantee that the grantor had a clear title of the property only during their time of ownership.
- That, if there is an issue with the title during that period the grantee is not entitled to compensation from the grantor. As a result, the guarantee does not cover the time before the grantor became the owner of the property.
Here is an article about further discusses the purpose of special warranty deeds.
When To Use a Special Warranty Deed
Because of the limited protection special warranty deeds offer buyers, they are rarely used in residential property transactions. In fact, many mortgage lenders require a general warranty deed when a property is transferred from the seller to the buyer for risk purposes.
Special warranty deeds, however, often used in estate matters . This is because the properties are transferred by the executor of an estate or trustee of a living trust to a buyer. Logically, the executor can't be held liable for defects or faults in the title because they never owned the property. Thus, it makes sense to limit their warranties through a special warranty deed.
Likewise, special warranty deeds are often used when the grantor isn't able to make extensive warranties as to the title of the property. An example of this is when a mortgage lender forecloses on a property. In this situation, the mortgage lender may not know the prior history of a property and therefore cannot offer the level of protection when it sells the property.
Although the previous owners who went into foreclosure may have encumbered the title, mortgage companies are not the individuals giving the guarantee that they did not. A special warranty gives the mortgage lender some protection against claims from buyers as a result of encumbrances of the title before foreclosure.
Special warranty deeds are most commonly used in commercial real estate transactions. This is simply because ownership of commercial real estate can have an extensive history of multiple owners, foreclosures, and other issues. As a result, special warranty deeds are needed to protect the current owner of the commercial property.
Explore some of ContractsCounsel’s real estate lawyers .
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Special Warranty Deed vs. Quitclaim
A quitclaim deed is typically used when the ownership of a property is not transferred because of a traditional sale. For example , they are commonly used when real estate is transferred in terms of a living will as a gift, or when a property is placed in a trust.
They are also quite common when a seller wants to sell a property but isn’t sure what the property boundaries are or whether there are any claims that can be made against the property.
And this is where the main difference with special warranty deeds comes in. With a warranty deed, the buyer has a claim against the seller to recover damages in the event that there’s an uncleared lien or any other issues on the title of the property. A quitclaim deed offers none of this protection and the buyer will have no recourse against the seller.
Here is an article about the differences between warranty deeds and quitclaim deeds.
Get Help With A Special Warranty Deed
When buying a house, ownership is transferred through a deed. Here, there are several types of deeds, each of which offers the grantee different levels of protection in respect of claims and other encumbrances in the title of the property.
As a result, buyers or grantees need to understand the differences between the different types of deeds and what protection they offer. Hopefully, this post helped illustrate these differences.
To find out more about special warranty deeds or other types of deeds, real estate lawyers can advise and guide buyers or grantees on the differences between them. Post a project on ContractsCounsel to get help with a special warranty deed.
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