What Is A Warranty Deed?
There’s a lot at stake when buying a home. After all, it’s likely the biggest purchase you’ll make in your lifetime. The last thing you want is to close on your dream home only to have a bank come knocking on the door later questioning who has the legal right to the property. That’s where a warranty deed comes in.
This document might seem like just one more sheet in your stack of mortgage paperwork, but it’s an important contract that protects your home against future claims. Read on to find out what it is and how it works.
What Is a Warranty Deed?
In a real estate transaction, there is a grantor and a grantee. These can be individuals or businesses. A warranty deed is a real estate document that warrants—or promises—that the grantor (seller) owns the property free and clear and there aren’t any outstanding mortgages, liens, judgments or other encumbrances against it. In other words, the seller has the authority to transfer the ownership rights to the grantee (buyer).
How Warranty Deeds Work
A warranty deed isn’t proof that you now own the property. Rather, it means the previous owner can guarantee that no one else holds ownership or is owed money for the property. You don’t actually own the property until the title is transferred to you.
The warranty deed will contain details such as the property’s address, parcel number, a legal description of the property, the transaction date and the names and addresses of the parties involved. In order to be legally binding, the warranty deed needs to be notarized and filed with the city or county office for keeping real estate records. It’s delivered to the grantee at the real estate closing.
Types of Warranty Deeds
There are actually two types of warranty deeds. Here’s a closer look at how each works.
General Warranty Deed
A general warranty deed offers the highest level of protection to the buyer. If there is a breach of the general warranty deed, the seller is responsible—even if it happened without them knowing or at a time when they didn’t own the property.
According to Legal Zoom, a general warranty deed guarantees that:
- The grantor legally owns the property and has the legal right to transfer it.
- There are no outstanding mortgages, liens or other claims against the property by any creditor.
- The grantor has a clear title. If there is a breach of the warranty, the grantee is entitled to compensation from the grantor.
- The grantor intends to transfer the property to the grantee.
Special Warranty Deed
A special warranty deed works similarly to a general warranty deed, except that it only applies to a certain timeframe. Basically, the special warranty deed promises that the current seller has the title to the property and there were no claims against it while they owned it.
The special warranty deed doesn’t protect against claims prior to when the seller received the title. These types of warranty deeds are most common with commercial real estate transactions.
This is why title insurance is important for protecting against potential liens and other claims. The title company will do the research ahead of the final sale to be sure there aren’t any possible breaches before the property gets transferred to the buyer, whether they’re using a general or special warranty deed.
In some cases, a landowner might use a grant deed in place of a warranty deed. The grant deed provides essentially all the same protections: No one else has a claim to the land, and there aren’t any liens or restrictions. However, the one thing a grant deed doesn’t protect against is third-party claims.
How to Get A Warranty Deed
A buyer typically needs a warranty deed when they attempt to get a mortgage or title insurance. Keep in mind, however, that not all real estate transfers involve an actual purchase, such as transferring a home from one family member to another.
It’s a good idea to get a warranty deed if:
- You are buying or selling a property and want to be guaranteed against problems with the title.
- You are finalizing the purchase of property with an individual.
- You are transferring ownership of a property to a trust.
- You’re a business owner and want to buy or sell real property.
If you are the buyer, you can require a warranty deed in order for the transaction to take place. A real estate lawyer can help with this.
As a seller, you can find many warranty deed templates online or through a local Realtor’s office. Just remember that it needs to be signed by both parties, notarized and filed with the county clerk’s office to be official. Usually, the lender will send off all the mortgage documents to be recorded, and the recording fees are rolled into the loan closing costs. The grantee will receive the original document once it’s recorded, and the grantor will get a copy for their records.
Quitclaim Deed vs. Warranty Deed
Though a quitclaim deed is similar to a warranty deed, it is not interchangeable. A quitclaim deed only states that the grantor is giving up their legal interest in a property. It doesn’t promise that other individuals or entities also have an interest in it.
There isn’t much protection for the grantee with a quitclaim deed, so it’s usually used in situations where both parties already have established trust, such as transferring property between family members.
Deed of Trust vs. Warranty Deed
Another document that you might confuse with the warranty deed is the deed of trust.
If you take out a loan to finance a home purchase, you will sign either a mortgage contract or a deed of trust (but not both). The deed of trust secures the real estate transaction and designates a third party (trustee) to handle the foreclosure process if you don’t pay back your loan. Essentially, it states that the trustee holds legal title to your property until you’ve paid it off according to the terms of your loan.