Buying a piece of property is a big investment, and it’s important to know what’s involved before you finalize a real estate transaction to avoid any legal issues with the purchase.
One term that will come up when you’re researching the details of buying a home is “warranty deed.” This is a legal document that most lenders require before you can close on a home or other property. Here’s a look at what a warranty deed is and why you need to understand this real estate term before you buy a property.
What Is a Warranty Deed?
A warranty deed is a legal document that gives a degree of protection to the buyer of a piece of real property, meaning real estate or vacant land. It comes with a guarantee from the seller that the property is free and clear of any outstanding financial claims, such as liens or mortgages.
It also provides guarantees to the buyer that the property is clear of encumbrances, easements, or restrictions. These are legal claims from third parties to use part or all of the land, which could affect its value. If the seller doesn’t disclose these claims, the buyer may seek legal action against them in the future.
Types of Warranty Deeds
There are several types of warranty deeds to be aware of.
Quitclaim deed
The quitclaim deed, also called a non-warranty deed, offers the grantee the least amount of protection. This type of deed may be used by the grantor to escape any liability if they are unsure of the status of the property title, as no warranties or promises are made.
Quitclaim deeds are most often used to transfer property between family members, where money doesn’t change hands and the extra level of protection provided by a general warranty deed isn’t required. This type of deed is common for marriage or inheritance. A new property owner may have to take care of issues with a property’s title if they only have a quitclaim deed.
Special warranty deed
A special warranty deed offers buyers less protection than a general warranty deed. It only includes two guarantees:
- The grantor is the rightful owner of the property and can legally sell it.
- No encumbrances or claims were present during the grantor’s period of ownership.
The grantor is not responsible for any liens or encumbrances that took place before they took ownership of the property. This type of deed is most commonly used in transactions involving the sale of commercial real estate.
Deed in lieu
If a property is in danger of being foreclosed, an owner may choose to go through with a deed in lieu. This type of warranty deed happens when a property owner transfers ownership to a lender to avoid having a foreclosure on their credit history. Lenders may prefer a deed in lieu over foreclosure because of the time and money they can save.
General warranty deed
General warranty deeds are the most common type for single-family homes and other residential property and land, and they offer buyers the most protection. A general warranty deed allows a buyer to take legal action against a seller if any liens, mortgages, or other issues were not resolved prior to the sale of a property.
Key Parties Involved in a Warranty Deed
These are the key parties involved in a warranty deed and their roles:
- Grantor: The grantor is the seller of a property. The grantor has the legal right to sell the property and has full responsibility to disclose any issues with the property, such as liens or encumbrances.
- Grantee: The grantee is the buyer of a property. A grantee needs to make sure a seller is disclosing all the details of a property and that the deed is represented accurately.
Covenants in a Warranty Deed
The general warranty deed contains several important covenants, or legally binding promises, made by the grantor. These include:
Covenant of seisin
The covenant of seisin states that the grantor is the legal property owner and has the right to transfer its title to the grantee. No other parties have any legal right to the property or its use, except those revealed in the warranty deed before the title transfer.
Covenant of quiet enjoyment
The covenant of quiet enjoyment ensures the grantee can enjoy full use of the property without disturbance or interference—and without fear of a third-party claim, foreclosure, or eviction. Essentially, the owner is ensured sole possession of the conveyed property.
Covenant of right to convey
The covenant of right to convey is basically the same thing as the covenant of seisin. It means a grantor has the right to convey a property to a new owner, and no other parties have legal claims or rights to it.
Covenant against encumbrances
The covenant against encumbrances guarantees the property is free of any liens or encumbrances, other than those previously disclosed. An encumbrance could prevent a property owner from fully enjoying all the rights to their land.
Covenant for further assurances
The covenant for further assurances means a grantor will do whatever is necessary to fix issues related to liens and encumbrances on the property’s title. If issues aren’t addressed, damages will be paid by the seller to the buyer to make up for the loss in property value.
How to Obtain a Warranty Deed
Warranty deeds are for both commercial and residential real estate deals and are common when a buyer is seeking mortgage financing or title insurance. Typically, a deed must contain a legal description of the property, be signed and witnessed, and be delivered to the right parties.
Before you sign a warranty deed, you should conduct a title search of available public records to ensure there are no liens on or claims to the property. You can establish the presence of a clear title yourself through a title company or with the help of an attorney.
As a legal contract, a warranty deed needs to be signed in front of a notary public or other impartial witness. It must also be delivered to and accepted by the new property owner. The signed deed should be recorded in the appropriate government department of your county, most often the County Recorder’s Office.
At a minimum, a warranty deed must include:
- The date of the transfer of ownership
- The names and signatures of the buyers and sellers
- A description of the deeded property
To confirm the warranty deed is done properly, you can check with the County Clerk, escrow agent, or real estate attorney who is advising you. Precisely how a deed is executed depends on state law, so make sure to check state requirements where you plan to buy property.
Importance of a Warranty Deed in Real Estate Transactions
Not only is a warranty deed required to complete a real estate transaction, it’s also necessary to ensure you have legal protection against anything that was misrepresented during the property transfer. For example, if a previous owner of the property failed to pay their property taxes, you won’t be held responsible for paying those taxes when you take over ownership if you’ve done the work to get a clear title, which involves having a warranty deed.
As a buyer, you’ll reap the most reward from a warranty deed. The document is designed to protect grantees from any liability on a property they were unaware of when they bought it. Filing a warranty deed with the County Recorder means you’ve gone through the proper channels to protect yourself against any outstanding liens, unpaid mortgages, or other issues that may result in decreasing the value or usability of a property.
Warranty Deed FAQ
Can a warranty deed be changed?
A warranty deed can be changed, but the process isn’t simple. You’ll essentially be creating a new deed if you need to change it for any reason.
The deed to a property is a legal, binding agreement. Making changes to it means you need to contact all parties involved, including the lender, title company, and County Recorder, and fill out all the deed paperwork, have it notarized, and submit it to the proper channels. Having a lawyer look over the deed before you finalize it to ensure everything is correct is a good idea.
What happens if a warranty deed is breached?
If a grantor is found to have breached a warranty deed, a grantee has the right to seek compensation for their loss through a legal process. A warranty deed breach can happen if any of the warranty covenants are broken. A buyer can sue a seller even if they don’t discover the deed breach for years.
Can a warranty deed be contested in court?
Yes, a warranty deed can be contested in court. However, the process for contesting a warranty deed can be challenging. This is especially true if the deed has been recorded at the County Clerk’s Office. Once a deed is recorded, it’s official and can be difficult to rescind. If you want to contest a warranty deed, it’s best to consult a real estate attorney for help.
What’s the difference between a warranty deed and a deed of trust?
While a warranty deed and a deed of trust are similar, there are a few key differences. A deed of trust can be used when a buyer is borrowing money from a lender for a property. It transfers ownership to a neutral third party—a trustee—until the loan is entirely paid off. Then the trustee deeds the property to the buyer.
A warranty deed, on the other hand, transfers the title directly to the new property owner without going through a third party.
Final Thoughts
Having a property with a free and clear title ensures you won’t have any legal issues when you take over ownership. Going through the process of getting a warranty deed gives you the protection you need when buying investment property. If you know what a warranty deed is and how to get one, you’re better prepared to buy a property without any restrictions.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
