What Is a Warranty Deed?
A warranty deed is a document often used in real estate that provides the greatest amount of protection to the purchaser of a property. It pledges or warrants that the owner owns the property free and clear of any outstanding liens, mortgages, or other encumbrances against it.
The two parties involved in a warranty deed are the seller or owner, also known as the grantor, and the buyer or the grantee. Either party can be an individual or a business, and are often strangers to each other.
There are different types of deeds such as the warranty deed, special warranty deed, and the quitclaim deed. The difference between these deeds is usually defined by what warranties and covenants are being conveyed from the seller to the buyer.
- A warranty deed is a document often used in real estate that provides the greatest amount of protection to the purchaser of the property.
- The deed pledges or warrants that the owner owns the property free and clear of any outstanding liens, mortgages, or other encumbrances.
- The grantor is responsible for a breach of any warranties and guarantees, therefore placing a great amount of risk upon the grantor.
How Warranty Deeds Work
A deed is an important legal document that transfers property from one entity to another—often in the case of a real estate deal. A general warranty deed provides the buyer with the highest form of protection. Warranty deeds are often put in place when a buyer is trying to get financing for a mortgage or title insurance.
All deeds contain the date of the transaction, the names of the parties involved, a description of the property being transferred, and the signatures of the buyer. Deeds may need to be signed in the presence of a witness and/or notary.
The grantor is the rightful property owner and has a legal right to transfer title.
With a general warranty deed, the grantor is responsible for a breach of any warranties and guarantees, even if the breach occurred without their knowledge or during a period when the grantor did not own the property. The general warranty deed places a great amount of risk upon the grantor as they become responsible for any breaches that may have occurred well beyond their knowledge or ownership of the property.
For this reason, title insurance is used in most transactions to guard against possible claims and liens. A title company would provide a full title search and explore any other possible breaches before the property is transferred.
Some of the covenants and protections granted through a warranty deed include:
- The grantor warrants that they the rightful owner of the property and has 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 a 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.
Special Consideration: Special Warranty and Quitclaims Deeds
A special warranty deed is not nearly as comprehensive as its general counterpart, as it only conveys two warranties:
- The grantor warrants that they have received the title.
- The grantor warrants that the property was not encumbered during the time the grantor owned the property.
A special warranty deed does not protect against any claims prior to the grantor receiving the title. Special warranty deeds are typically used more in the commercial real estate world.
As with most deeds, the warranty deed should contain an accurate legal description of the property being conveyed, be signed and witnessed in accordance with state law where the property is located, and delivered to the grantee during the closing of the transaction.
Like the warranty deed, the quitclaim deed transfers property from one individual to another. Title insurance is not needed for this type of deed. And unlike the warranty deed, a quitclaim deed is drawn up when a property is transferred without a sale. So it may be used, for instance, when a property is transferred between family members.
Quitclaim deeds offer less protection than a warranty deed. They release the owner or grantor's interest in the property and don't state whether they hold valid ownership in the first place. Instead, the assumption is that if the grantor ever did own it, any claim to the property is relinquished when the deed is signed. This type of deed also prevents the owner from any future interests in the property.
That being said, the buyer agrees to all conditions and takes on the risk that there may be other claimants to the property.