What Is a Special Warranty Deed?
A special warranty deed is a deed to real estate in which the grantor (the seller of the property) warrants only against anything that occurred during his actual ownership. In other words, the grantor doesn't guarantee against any defects in clear title that existed before he took possession of the property.
Commercial property transactions will more commonly use special warranty deeds. Single-family and other residential property transactions will usually use a general warranty deed. In fact, many mortgage lenders insist upon them.
The Basics of a Special Warranty Deed
Transfer of ownership or title to commercial or residential real estate property comes with certain guarantees made by the seller. These include the guarantee that the title to the property is being transferred free and clear of ownership claims, outstanding liens or mortgages, or other encumbrances by individuals or entities other than the seller.
A special warranty deed, also known as a limited warranty deed, is a variation of the general warranty deed, the most common and preferred type of instrument used to transfer real estate property in the United States. Both general and special warranty deeds provide a guarantee that the seller owns the title and is free to sell the property. The seller also warranties the property to be free of debt or encumbrances (aside from any noted in the deed), and if not, the seller is responsible for any title defects.
However, with a special warranty deed, the guarantee covers only the period during which the seller held title to the property. Special warranty deeds do not provide protection against any mistakes in a free and clear title that may have existed before the seller's ownership of the property. Thus, the grantor of a special warranty deed is only liable for debts, problems, or other encumbrances to the title that he caused or that happened during his ownership of the property.
- A special warranty deed is a deed in which the seller of a piece of property only warrants against problems or encumbrances in the property title that occurred during his ownership.
- A special warranty deed basically guarantees two things: The grantor owns, and can sell, the property; and the property incurred no encumbrances during his ownership.
- A special warranty deed is more limited than the more common general warranty deed, which covers the entire history of the property.
Special Warranty Deed vs General Warranty Deed
While the use of the word "special" may communicate to a buyer the idea that the deed is of higher quality, the special warranty deed is in fact, less comprehensive and offers less protection than a general warranty deed does.
A general warranty deed covers the property's entire history. It guarantees the property is free and clear from any defects or encumbrances, no matter when they were incurred or under whose ownership. The general warranty deed assures the buyer they are obtaining full rights of ownership without valid potential legal issues with the title.
More specifically, a general warranty deed provides the grantee, or buyer, with the highest form of protection as it assures the following basic warranties:
- The grantor warrants that they are the rightful owner of the property and have a legal right to transfer the title.
- The grantor warrants that the property is free and clear of all liens and that there are no outstanding claims on the property from any type of creditor using it as collateral.
- There is a guarantee that the title would withstand any third-party claims to ownership of the property.
- The grantor will do whatever is necessary to make good the grantee’s title to the property.
Real World Example of a Special Warranty Deed
Although general warranty deeds are more common in residential real estate transactions, special warranty deeds are the norm in one area: properties that have been foreclosed, real-estate-owned, or short-sold. In fact, most Federal National Mortgage Association (FNMA)-, Housing and Urban Development (HUD)- and bank-owned residences are sold with this sort of deed—probably because the selling authority has no wish to be liable for any situation concerning the property before it had to seize it.
For example, in 2012, a Mr. and Mrs. Harvey of Grenada County, Mississippi defaulted on the loan payments on their home. In February, 2013, the property was foreclosed upon by their lender, Wells Fargo Bank. Subsequent legal documents indicated that Wells Fargo "conveyed the Property to FNMA in a special warranty deed."