A warranty deed is a vital legal document in real estate transactions that protects the buyer and ensures the seller holds a clear title to the property, free from outstanding liens or mortgages, and no future claims can be made against the title.
The parties involved in a warranty deed are the seller, known as the grantor, and the buyer, or the grantee. Both parties can be individuals or businesses.
Most lenders require a warranty deed for financed properties to safeguard against potential title issues.
Key Takeaways
- Protection: A warranty deed ensures the seller holds a clear title to the property without any outstanding liens or mortgages, protecting the buyer.
- Legal Real Estate Document: It protects the buyer against future claims to the title.
- Lender Requirement: Most lenders require a warranty deed for properties they finance.
- Buyer and Seller Identification: The seller is referred to as the grantor, and the buyer as the grantee.
How Warranty Deeds Work
A deed is a legal document transferring real estate property from one entity to another. During a real estate transaction, a title company conducts a thorough title search of current and past property ownership to identify any defects or issues in the title.
A warranty deed holds the seller (grantor) responsible for any title breaches even if the breach occurred unknowingly or before the grantor’s ownership, ensuring the buyer is not liable for past defects or encumbrances.
The warranty deed is delivered to the grantee at the closing of the sale. It includes:
- An accurate legal description of the conveyed property.
- Signatures, witnessed as per state laws.
- Legal words of conveyance granting the property to the buyer.
- Proof of the consideration (payment) for the property.
Types of Warranty Deeds
General Warranty Deed
- The grantor assures they are the rightful owner with the legal right to transfer the property’s title.
- The property is free and clear of all liens, with no outstanding claims by creditors.
- Guarantees the property’s title can withstand third-party ownership claims.
Special Warranty Deed
- The grantor indicates they hold the title and no encumbrances occurred during their ownership period.
- No guarantee is provided against defects in the clear title from prior to their ownership.
How to Get a Warranty Deed
A real estate agent or lawyer can assist in obtaining a warranty deed for both buyers and sellers. For sellers, providing a warranty deed offers assurance to potential buyers. Buyers seek the highest protection level and peace of mind, making a warranty deed crucial for a smooth, issues-free transaction.
Other Types of Deeds
- Quitclaim Deed: Transfers property between individuals without a sale, often among family members or during divorces. It relinquishes any claim to the property, preventing future interest by the signer.
- Deed in Lieu: Used when a borrower in mortgage default transfers the property to the lender, avoiding foreclosure on their credit history.
- Special Purpose Deed: Utilized in court proceedings, allowing representatives to transfer property without personal liability.
Differences Between Title Insurance and a Warranty Deed
A title search conducted by a title company examines public records for issues. General warranty deeds allow new owners to hold previous owners accountable for title defects. Title insurance offers broader protection, covering issues like conflicting wills or tax liens.
Examples of Claims Protected by Warranty Deeds
New owners are protected against previous owners’ code violation fines or unpaid HOA fees.
Risks of a Special Warranty Deed
A special warranty deed limits the seller’s liability to their ownership period, offering no legal protection for title issues predating their ownership, thus posing a significant risk to the buyer.
Conclusion
A warranty deed is crucial in ensuring a property has a clear title and no outstanding liens or mortgages. Combining a warranty deed, title search, and title insurance offers optimal protection to real estate buyers, safeguarding against past and future title claims.
Related Terms: Title Insurance, General Warranty Deed, Special Warranty Deed, Quitclaim Deed, Deed in Lieu, Clear Title.
