Warranty Deed: Definition, Types, and How It's Used

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What Is a Warranty Deed?

A warranty deed is a legal real estate document that protects the buyer and ensures that the seller holds a clear title to the property, has no outstanding liens or mortgages, and there will be no future claim to the title of the property.

The two parties involved in a warranty deed are the seller, known as the grantor, and the buyer, or the grantee, and either party can be an individual or a business.

Most lenders require a warranty deed for properties they finance.

Key Takeaways

• A warranty deed protects the buyer and ensures that the seller holds a free and clear title to a property without any outstanding liens or mortgages.
• A warranty deed is a legal real estate document and protects the buyer against future claims to the title of the property.
• Most lenders require a warranty deed for properties they finance.
• The seller of a property is known as the grantor and the buyer is referred to as the grantee.

How Warranty Deeds Work

A deed is a legal document that transfers real estate property from one entity to another as a seller to a buyer. During a real estate transaction, a title company provides a full title search of current and past ownership of the property to see if there are any defects or issues affecting the title during past ownership of the property.

A warranty deed holds the seller, or grantor, responsible for any breach after the title search, even if the breach occurred without their knowledge or during a period before the grantor owned the property. It ensures that the buyer will not be responsible for any past title defects or encumbrances.

The warranty deed is delivered to the grantee during the closing of the sale. It contains an accurate legal description of the property being conveyed, is signed and witnessed following the state law where the property is located, contains legal words of conveyance that the seller is granting the property to the buyer, and shows proof of the amount of money or consideration paid for the property.

Types of Warranty Deeds

General Warranty Deed

• The grantor warrants that they are the rightful owner of the property and have the legal right to transfer the title of the property in a sale.

• The grantor warrants that the property is free and clear of all liens and that there are no outstanding claims on the property from a creditor who may claim it as collateral.

• A guarantee that the title can withstand any third-party claims to ownership of the property.

Special Warranty Deed

• Conveys that the grantor holds the title and there has been no encumbrance of the property during the grantor’s ownership period of the property.

• The grantor does not guarantee against any defects in clear title that existed before they took possession of the property.

How to Get a Warranty Deed

A real estate agent or real estate lawyer can help both buyers and sellers obtain a warranty deed. Whether buying or selling a property, a warranty deed can guarantee against problems with the title.

As a seller or grantor, having a warranty deed in place will give potential buyers some assurance concerning the property. A buyer will likely look for the highest level of protection and peace of mind when investing in real estate. If there are no outstanding liens or claims on the title of the property, a warranty deed can lead to a mutually successful transaction.

Other Types of Deeds

• The quitclaim deed transfers property from one individual to another without a sale, usually between family members or during divorce proceedings. Once the deed is signed, any claim to the property is relinquished and a quitclaim deed prevents the owner from any future interests in the property.
  
• A deed in lieu transfers the property to the lender through a deed in lieu of foreclosure when a borrower defaults on their mortgage and avoids registering a foreclosure on the borrower's credit history.
  
• A special purpose deed is used during court proceedings and allows those acting on behalf of the property to make property transfers without incurring personal liability.
  

What Is the Difference Between Title Insurance and a Warranty Deed?

A title company completes a title search and examines public records for any issues or errors. The guarantees and disclosures in a general warranty deed allow the new owner to hold the former owner responsible if there is a title defect or if a claim is made against the title. Title insurance covers a wider range of potential claims than the general warranty deed does, including conflicting estate wills or tax liens.

What Are Examples of Claims That Are Protected by Warranty Deeds?

A buyer, or new owner, will be protected from previous owner's fines issued because of code violations, or if a previous owner failed to pay HOA fees.

What Are the Risks of a Special Warranty Deed?

Unlike a general warranty deed, the seller is not liable for any title issues that could have occurred before they took ownership. This creates a risk for a buyer because they will have no legal protection for any potential title issues that could arise after the real estate transaction is complete.

The Bottom Line

A warranty deed is a real estate document that ensures that the property has a clear title and the seller has no outstanding liens or mortgages. A combination of a warranty deed, a title search, and title insurance provides the highest protection to a buyer of real estate and ensures that defects in the title do not exist and that there will be no future claims to the property title.