Table of Contents
- What Is a Special Warranty Deed?
- Key Takeaways
- Understanding the Functionality of Special Warranty Deeds
- Exploring General Warranty Deeds
- Important Note on General Warranty Deeds
- Comparing Special Warranty Deeds and General Warranty Deeds
- Common Features of General and Special Warranty Deeds
- Pros and Cons of Special Warranty Deeds
- Real-World Example of a Special Warranty Deed
- Important Considerations for Special Warranty Deeds
- What Is a Special Warranty Deed Used for?
- What Is a General Warranty Deed?
- What Are Other Names for a Special Warranty Deed?
- The Bottom Line
What Is a Special Warranty Deed?
Let me explain what a special warranty deed is. It's a type of deed that gives you limited protection, covering only defects or title encumbrances that happened while the current owner had the property. This differs from a general warranty deed, which looks at the whole history of the property. You'll often see special warranty deeds in commercial deals or with foreclosed properties. As a buyer or seller, you need to grasp these differences to make sure your transaction is secure.
Key Takeaways
Here's what you should remember: A special warranty deed only deals with defects or title problems that occurred during the grantor's ownership. These deeds are common in commercial transactions and in residential sales like foreclosures or bank-owned properties. In contrast, general warranty deeds give more complete protection by covering the full history of the property's title up to the sale. You should often get title insurance with any deed to guard against hidden liens or claims. Don't be fooled by the name— a special warranty deed actually provides less coverage than a general one.
Understanding the Functionality of Special Warranty Deeds
Special warranty deeds are primarily for commercial property deals. For single-family homes or other residential properties, you typically use a general warranty deed, and many mortgage lenders insist on that. In various states, these are also known as covenant deeds, grant deeds, or limited warranty deeds. The guarantee only applies to the time the seller owned the property. It doesn't cover any mistakes or issues in the title that existed before the seller took over. So, if you're the grantor using a special warranty deed, you're only responsible for debts, problems, or encumbrances you caused during your ownership. As the grantee, you take on the risk for anything from previous owners.
Exploring General Warranty Deeds
A warranty deed transfers ownership of commercial or residential property and comes with specific guarantees from the seller. These ensure the title is free of claims, liens, mortgages, or other encumbrances not created by the seller. A general warranty deed covers the entire history of the property, guaranteeing it's free and clear of defects no matter when or under whom they occurred. This gives you, the buyer, full ownership rights without legal title issues.
Important Note on General Warranty Deeds
The general warranty deed is the most common and preferred way to transfer real estate titles in the U.S.
Comparing Special Warranty Deeds and General Warranty Deeds
A special warranty deed, sometimes called a limited warranty deed, is a variation of the general warranty deed. The word 'special' might make you think it's better, but it actually offers less coverage because it only applies to a limited time frame. For residential properties, you'll see them in foreclosures or forced sales to pay off debts. Let me give you an example: Suppose a home had two previous owners before you. The first was a hoarder, letting the house and yard fall apart, leading to city fines attached to the property. That owner defaulted on the mortgage, the bank foreclosed, and sold it to the second owner. The second owner fixed it up and after 10 years, sold it to you with a special warranty deed. When you try to sell later, those old code enforcement liens could still be there, and you'd have to pay them off to clear the title.
Common Features of General and Special Warranty Deeds
Both types of deeds include key details: the name of the seller (grantor), the name of the buyer (grantee), the property's physical location, that it's free of debts or encumbrances except those noted, that the grantor is the rightful owner with the legal right to transfer title, that there are no outstanding liens or claims from creditors, a guarantee that the title will hold up against third-party claims, and that the grantor will do what's needed to make the title good for the grantee.
Pros and Cons of Special Warranty Deeds
On the positive side, special warranty deeds allow the transfer of property title between seller and buyer, and buying title insurance can reduce risks from prior claims. They're useful for purchasing foreclosed houses. However, they provide narrow protection for buyers, covering only the seller's ownership period, and they're not commonly used for residential properties.
Real-World Example of a Special Warranty Deed
While general warranty deeds are standard in residential real estate, special warranty deeds are the norm for foreclosed, real-estate-owned (REO), or short-sold properties. Entities like Fannie Mae, HUD, and banks use them when selling these. The main reason is that the seller doesn't want liability for anything before they took possession. For instance, in 2012, a couple in Grenada County, Mississippi, defaulted on their loan. In February 2013, Wells Fargo foreclosed and conveyed the property to FNMA via a special warranty deed.
Important Considerations for Special Warranty Deeds
Usually, a title search will find any liens or claims on a property's title. This involves reviewing public records to confirm ownership, and it can be done by attorneys, title companies, or individuals. Even though these searches are thorough, something could be missed. That's why most buyers get title insurance, no matter the deed type. Title insurance protects you from financial claims against the property's title.
What Is a Special Warranty Deed Used for?
If you're in a commercial property transaction, you'll likely use a special warranty deed.
What Is a General Warranty Deed?
When buying a home or residential property, you usually use a general warranty deed, especially with a mortgage lender.
What Are Other Names for a Special Warranty Deed?
In the real estate industry, it's also called a covenant deed, grant deed, or limited warranty deed.
The Bottom Line
To wrap this up, a special warranty deed gives you limited protection, making the grantor responsible only for title issues during their ownership. It's common in commercial deals or foreclosures, where the seller avoids liability for prior defects. You can reduce risks with title insurance, which guards against claims. For residential buys and fuller protection over the property's history, go with a general warranty deed.
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