What Is a Special Warranty Deed?
A special warranty deed is also referred to as a limited warranty deed, grant deed, or covenant deed. This type of deed is different than a general warranty deed and a quitclaim deed. Special warranty deeds transfer ownership of a property from the seller, called the grantor, to the buyer, called the grantee. They offer less protection to grantees than the more commonly used general warranty deeds because they only guarantee there are no title issues within the time period that the grantor owned the property.
When you close on a house, you’re named on the house deed as the grantee and the grantor relinquishes ownership. The deed is different than the house title because it’s only job is to transfer the ownership of the property, but not to claim ownership. Reviewing the specifics of a special warranty deed and the household finance terms associated with this deed can help you understand whether this type of ownership transfer document is right for your situation.
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Special Warranty Deed vs. General Warranty Deed
A special warranty deed is like a general warranty deed with some restrictions. With a general warranty deed, all risk lies with the grantor because this type of deed guarantees that there are no title issues or defects on the property throughout its history. When you close on a home with a general warranty deed, if any title issues arise, it’s up to the grantor to solve them.
However, with a special warranty deed, risk is shared between the grantor and the grantee. While the grantor guarantees there are no title issues or defects that occurred while they held ownership, there are no guarantees for the title history of the home before the grantor took ownership. Once the grantee takes ownership of the home, title issues or defects that arise from before the grantor took ownership are the grantee’s responsibility to resolve.
Special Warranty Deed vs. Quitclaim Deed
Quitclaim deeds are the riskiest types of deeds for grantees because they take on all the risk. With a quitclaim deed, the grantor makes no warranties or guarantees that the title is clear of defects or issues. Since the grantee must trust the grantor’s interest in the property and that the title is clear, these types of deeds are usually only used to transfer property ownership between family members or friends.
A quitclaim deed may also be used to change the names of the owners on the title of a property, such as when a property owner gets married or divorced. When a homeowner cannot afford to pay the mortgage, they may go into foreclosure with the lender. In some cases, the homeowner may qualify for a deed in lieu of foreclosure, which allows them to transfer ownership of the property to the bank. In these cases, quitclaim deeds are used to transfer ownership from the current homeowner back to the lender.
Special warranty deeds are different than quitclaim deeds because the grantor is taking on some of the risk. The grantor promises that the title is free of issues during the time they had ownership. This gives the grantee a bit of protection against potential title issues. However, with a quitclaim deed, the grantor promises nothing and has no responsibility to resolve title issues or defects if they arise.
When Are Special Warranty Deeds Used?
In most cases, a general warranty deed is used when closing on a home. This alleviates any risk from the home buyer and forces the seller to agree that no title issues will arise after closing.
However, a home seller may stipulate that they will only sell a home using a special warranty deed if they don’t want to deal with potential title issues or take on the risk of resolving past title defects. The limited warranty of title that a special warranty deed provides is concerning for first-time home buyers or grantees that don’t know the home seller or the property’s history.
In most cases, special warranty deeds are only used in special circumstances, including when:
- Transferring real estate to a self-controlled trust.
- Selling commercial property to an investor.
- Transferring real estate to a business or corporation’s name.
- Selling multi-family residential property to an investor.
- Transferring ownership to a new owner who bought title insurance and isn’t concerned with title issues.
When the grantee feels comfortable with the property and its title history, knows and trusts the property owner, or is willing to take on the potential risk of title issues arising from the past, a special warranty deed may be used. However, in most real estate transactions, home buyers are encouraged to request general warranty deeds instead.
How Special Warranty Deeds Work
Special warranty deeds are unique because they only provide a warranty of title for the period of time when the grantor held the property’s title. The grantor makes no guarantees that the title is clear for the time prior to their ownership of the property.
How to Get a Special Warranty Deed
Each state has its own guidelines for special warranty deeds. Some states may require the deed writer to use specific language to make the document legally binding while others may have certain font size and page format guidelines that must be followed.
While each state may set its own requirements, all standardized special warranty deeds will generally include certain pieces of information, such as:
- The grantor’s legal name.
- The grantee’s legal name.
- A statement of how the grantees will record their names, if there’s more than one buyer.
- The property address and legal description.
- A statement of the limited warranty of title.
- Notarized signatures from both parties.
While these pieces of information are generally required in a special warranty deed, it’s important to enlist the services of a professional when creating your own document.
In some cases, a special warranty deed can be used to share title risk between the grantee and grantor. However, homebuyers must understand they’re taking on some responsibilities for title risks and defects with this type of deed and should remain cautious.
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