Warranty Deeds
What is it?
A general warranty deed is a type of deed where the grantor (seller) guarantees that he or she holds clear title to a piece of real estate and has a right to sell it to the grantee (buyer). The guarantee is not limited to the time the grantor owned the property-it extends back to the origin of the property. It is a promise to the grantee that the grantor will warranty any prior problems with title, not just during the seller's ownership, but back along the chain of ownership. Warranty deeds are very similar to grant deeds with one main exception: grant deeds contain two guarantees but warranty deeds contain three guarantees:
• The grantor states there are no hidden liens or encumbrances on the property apart from those the seller has already told the buyer about.
• The grantor declares that he or she is the owner of the property and has a right to sell it to you.
• The grantor guarantees that if the title ever fails, he or she will compensate the grantee for any losses, even if the defect was caused by a prior owner. (This guarantee may not be beneficial as the grantor may be deceased or unable to follow through if title problems are found in the future)
A warranty deed should contain an accurate description of the property being conveyed, be signed and witnessed according to the laws of the state where the property is located, and be delivered to the purchaser at closing. The deed should be recorded by the buyers of the property at the public records office, which is usually located in the county courthouse. Recording a deed gives "notice to the world" that a particular piece of property has been sold. Though the grantor guarantees good title, the deed is no substitute for title insurance because a warranty from a grantor who later dies or goes bankrupt may have little value. Warranty deeds usually require that a title search be conducted by a trained professional to ensure that the property is free and clear of liens or encumbrances. Any lien or encumbrance discovered would effectively "cloud" the title of the property and make warranting the property risky or impossible.
A special warranty deed varies only in that it limits the seller's warranty to title problems that come up while the seller owned the property, but gives no warranty for problems prior to that point.
When to use it?
A warranty deed is used when a grantor (seller) wishes to transfer ownership of a piece of property to the grantee (buyer). It is used to provide the greatest protection to the purchaser because the grantor pledges or warrants that they legally own the property and that there are no outstanding liens, mortgages, or other encumbrances against it.
Warranty deeds are most commonly used when a person or couple purchases a house from a homeowner and needs to transfer title; or when a relative desires to name another person as the co-owner of a house or parcel of property that he or she currently owns by him or herself.
Special warranty deeds are often used by grantors like builders. Often builders only own the property long enough to build on it and therefore utilize a special warranty deed to avoid risk from something that happened to cloud title before their ownership.
Foreclosure property is another example where you often see special warranty deeds. The bank, like the builder, has no close relationship to the property and won't bend over backwards to promise anything about the condition of title before they acquired the property through foreclosure.
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