Buying a property can mean many things: a new home, a vacation property, an investment opportunity, and the list goes on. Before you can enjoy any of the benefits associated with your new piece of real estate, there are some concerns to address. Namely, you need to make sure you are buying the property from its rightful owner — and that you will be protected in case any issues arise.
The best way to safeguard yourself as a buyer is by obtaining a warranty deed. This document will ensure that there are no ownership disputes or liens against your new purchase, and if there are, you will not be responsible for the legal or financial implications. This document, and others like it, are a crucial aspect of any real estate deal. Keep reading to learn how a warranty deed works and how you can obtain one when buying a property.
What Is A Warranty Deed?
A warranty deed is a legal document that transfers ownership of a property from the seller to the buyer during a real estate transaction. Its purpose is to offer a layer of legal protection to buyers when purchasing a property. These documents state that the seller will be responsible if any claims against the property were to arise, such as a tax lien or outstanding mortgage.
These deeds typically include the names of the grantor and grantee, a description of the property, the date of the transaction, and the signatures of both parties (in some cases, a notary or witness is also required to sign). These deeds are most common in residential real estate transactions, though they can also be used in commercial real estate or when buying vacant land.
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How Does A Warranty Deed Work?
Warranty deeds are typically provided alongside the property title during the closing process. The warranty deed states that the seller (or grantor) has the legal right to transfer ownership to the buyer (or grantee), making these documents a crucial part of a real estate transaction. Warranty deeds allow the buyer to sue the seller if any ownership issues were to arise, regardless of whether or not the seller was aware of the problem. Lenders often require them before agreeing to finance a property to protect themselves when providing a mortgage loan. In most transactions, warranty deeds are also used when a buyer requests title insurance. The title company will then research any ownership claims, outstanding mortgages or liens, easements, and more before allowing the sale to proceed.
Before Signing A Warranty Deed
Whether you are buying or selling a property, you should know a few things before signing a the deed. As a seller, you do not want to be legally responsible should any ownership claims come up. On the other hand, buyers likely want to avoid the legal processes required to sort out these issues. That being said, there are a few items to confirm when signing a warranty deed:
Conduct a title search with the help of a title company or real estate attorney to identify any potential issues.
Look up your state laws to determine whether a notary or witness must sign the deed to make it official.
Double check the property information, date of transaction, and names of both the buyer and seller.
Confirm with your county records office that the warranty deed will be filed accordingly.
Types Of Warranty Deeds
There are several types of warranty deeds used in the real estate industry. It is crucial to know which protections, if any, the type of deed you are signing will provide. Review the following list to learn more:
General Warranty Deed
Special Warranty Deed
Deed In Lieu
Special Purpose Deed
General Warranty Deed
A general warranty deed offers the highest level of protection to buyers during a real estate transaction. By signing a general warranty deed, sellers assume the responsibility of any claims against the property regardless of if they were aware of them or not. General warranty deeds guarantee that the buyer is protected from claims made during the entire history of the property, meaning that if a legal dispute dates back to before the seller owned the property, they are still legally responsible. This creates an inherent risk for sellers, though this problem is often eliminated through a thorough title search.
General warranty deeds are the most common type of deed issued for residential real estate transactions. They typically contain the following points:
Covenant Against Encumbrances: This establishes that the property is free of any claims or liens unless otherwise specified by the seller.
Covenant Of Seisin: This states that the seller is the rightful legal owner, and has the right to sell and transfer the property.
Covenant Of Quiet Enjoyment: This statement asserts that the buyer can purchase the property without fear of legal claims, foreclosures, or evictions as a result of the sale.
Covenant Of Further Assistance: If any issues arise, this puts the seller in charge of fixing legal claims and/or paying the buyer to make up for any losses.
Special Warranty Deed
A special warranty deed can be considered one tier below a general warranty deed in terms of legal protections. These deeds are most commonly used when the seller has owned the property for a limited amount of time, for example, if the property is a foreclosure being sold by a bank. Special warranty deeds guarantee two main protections:
The seller is the rightful owner of the property and has the legal power to transfer ownership.
There are no claims against the property when the seller was the rightful owner.
Quitclaim deeds, or non-warranty deeds, do not offer many protections for buyers. They essentially remove the responsibility from the seller if any legal issues were to arise with the property title. Quitclaim deeds are most commonly used when transferring property ownership between family members, such as part of an inheritance or marriage. These deeds are also commonly used after a divorce, so the spouse that moves out of the property can avoid future liabilities.
Deed In Lieu
A deed in lieu does not offer any of the protections of a general warranty deed and is instead used to transfer ownership quickly and without issue. These are typically used after a borrower defaults on their home loan to transfer ownership to the lender. By using a deed in lieu, borrowers can sometimes avoid having a foreclosure noted on their credit history.
Special Purpose Deed
Special purpose deeds are exactly what they sound like: deeds used in specific settings to transfer property ownership. They do not offer any protections to the new owner and allow the previous owner to transfer the property without liability. For example, a special purpose deed will often be used if the property transfer results from court proceedings. They can also be used during the probate process if a homeowner dies without a will.
Warranty Deed Vs. Deed Of Trust
Warranty deeds and deeds of trust are commonly mistaken for each other, but they serve two very different purposes within a real estate transaction. The warranty deed transfers ownership from the seller to the buyer, offering certain legal protections as part of the document. A deed of trust is used between the buyer and their lender to guarantee that the buyer will repay the loan. The deed of trust gives the lender interest in the property if the buyer were to default on the mortgage.
Both the warranty deed and deed of trust must be signed before a real estate transaction is concluded. They are then both filed with the county records office, where they are made public record. The warranty deed will remain part of the new owner’s files, while the deed of trust concludes when the mortgage is paid off. At that point, the lender will provide a statement releasing the property and proving that the mortgage was fully repaid.
Warranty Deeds, Title Searches, & Title Insurance
How can you guarantee that no legal issues will arise when signing a warranty deed? The answer is by minding your due diligence with title insurance and a search for any potential claims. Most lenders will require that a title search is completed prior to the sale; however, even if it is not required, you should still request this (especially as a buyer). The title company will typically be able to uncover any issues surrounding ownership of the property. Buyers can forego title insurance and conduct the title search themselves, but this is typically not recommended.
The purpose of title insurance is to offer additional protections against potential claims. While this deed will protect the buyer from many legal concerns, title insurance is an additional layer of legal protection. Title insurance typically covers any threats from third-party ownership claims, zoning codes, government regulations, and more. It is often recommended to use title insurance even with a warranty deed — as you want to avoid as many potential challenges when buying or selling a home.
There are several legal components necessary to complete a real estate transaction. Whether you are buying or selling, it is important to familiarize yourself with the necessary processes. A warranty deed is one such element that both buyers and sellers should be prepared to encounter (or provide). These deeds serve to protect the buyer from any claims made against the property. While this does require sellers to take on a level of responsibility, they are often unavoidable when selling a property. Always look into title insurance and thoroughly review the components of the warranty deed before concluding the real estate transaction.
Did this article help you better understand the purpose of a warranty deed? Leave any additional questions in the comments below.
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