What is a special warranty deed?
What’s the difference with a general warranty deed?
What are the characteristics that you should know about?
We will look at what a special warranty deed means, its definition, its characteristics, what are the elements found in such warranty deeds, when they are used, what are the differences with a general warranty deed or a quitclaim deed, how you can protect yourself against property title defects and more!
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What is a special warranty deed
A special warranty deed is a real estate legal document where a seller (the grantor) guarantees to the buyer (the grantee) a clear title and protection against future title defects, claims or problems originating during the seller’s period of ownership.
In other words, the seller will not provide any warranties to deal with title issues or defects with the real estate property for the period prior to the seller’s ownership.
For example:
Suppose a buyer acquires a property and eventually finds out that there was a defect in the title of the property.
If the defect originates from the period where the seller was the property owner, the buyer can pursue the seller for damages or can assert a claim against the seller.
However, if the title defect originates from a period prior to the seller’s ownership, then the buyer cannot assert a claim against the seller as a result of the deed of special warranty.
We can refer to special warranty deeds in many ways:
- Limited warranty deed
- Special grant deed
- Special covenant
- Limited deed of warranty
- Special deed of warranty
Special warranty deeds are common in commercial real estate transactions and commercial properties.
In residential real estate transactions, the sale is typically made with a general warranty deed where the seller guarantees the property for any title issues regardless of the seller’s ownership period.
Without a general warranty deed, mortgage lenders may not finance the buyer’s purchase as they consider the title risk too high.
A challenge on a property title or defect in the title can include:
- Mistakes by the attorney in obtaining confirmation of clear title
- Mistakes in discharging registered liens on the property
- Mistakes in discharging registered mortgages on the property
- Lien registered against a property for unpaid property taxes
- Lien granted to a private lender and not disclosed to the buyer
- Lien granted to a second ranking creditor but never discharged
- The property had several owners where one granted liens or encumbrances not discharged
If a person or entity can assert a claim on the title of the property, we can consider that to be a title defect or issue.
Special warranty deed definition
What does a special warranty mean anyway?
Let’s define special warranty deed to better understand the concept.
According to The Free Dictionary by Farlex citing from West’s Encyclopedia of American Law, a special warranty deed is defined as:
A written instrument that conveys real property in which the grantor (original owner) only covenants to warrant and defend the title against claims and demands by him or her and all persons claiming by, through, and under him or her.
In essence, it’s a legal document where the seller (grantor) agrees to defend the buyer (grantee) for any future title claims or lawsuit filed against the property.
Characteristics of a special deed of warranty
You may wonder, should I buy a house with a special warranty deed?
The answer is that as long as you’ve done your research and have weighed the pros and cons.
Here are the characteristics of a special deed of warranty to help you make a more informed decision.
A special deed of warranty has the following characteristics:
- It is an express warranty
- It is a warranty deed that provides the transfer of ownership from the seller to the buyer
- It can be linked to any commercial or residential property
- The seller guarantees a clear title to the buyer
- The guarantee covers the period of seller’s ownership
To guarantee a clear title means that the seller promises to the buyer that:
- The grantor owns the property
- The grantor has the right to sell the property
- The property title is free and clear
- There are no mortgages registered against the property
- There are no liens registered against the property
- There are no other form of encumbrances registered against the property
Further to the special purpose deed, if the buyer ends up with any type of title challenge, defects, issues or claims, he or she can turn against the seller for damages and compensation provided the title issue came into existence during the seller’s period of ownership.
Special warranty deed contract
What is special warranty deed?
Who signs a special warranty deed?
A special warranty deed is a contract or legal document signed between a homeowner or property owner and a buyer.
Just like any other contract, it is a legally binding agreement.
If the seller entered into the contract on the basis of false representation or fraud, he or she will be exposed to lawsuits and claims for compensatory damages.
The deed of special warranties will have the following elements:
When are special warranty deeds used
There are certain types of real estate transactions where the special warranty deed is the standard sales approach.
You may find special warranty deed real estate transactions in the following situations:
- Foreclosed properties and foreclosures
- Commercial real estate property transactions
- Estate transactions
- Real-estate owned (REO)
- Property short-sale
- Sale by authorities such as Federal National Mortgage Association, Housing and Urban Development and banks
In fact, in the context of foreclosed properties, real-estate owned (REO) or property short-sale, the sale of the property is made with a special or limited warranty.
In the United States, properties sold by the Federal National Mortgage Association, Housing and Urban Development and the banks are sold with special warranties as they do not wish to remain accountable for all the properties they sell.
Special warranty deed vs general warranty deed
What is the difference between a special warranty deed and a general warranty deed?
Is a “special” warranty better than a “general” warranty?
If a buyer had to choose between a special warranty deed and a general warranty deed, the better option is the general warranty deed.
If the seller had to choose between a special warranty deed vs warranty deed, the better option would be the special warranty deed which is a more limited warranty than the other.
There are no major differences between a general vs special warranty deed from a substance.
They both provide legal protection to the buyer against defects relating to the title of the property.
The general warranty deed is superior to the special warranty because it covers the entire period of property existence as opposed to only the period where the particular seller was the owner.
For example:
If you are buying a property that was owned by one and the same owner during its entire period of existence, in reality, a special warranty or a general warranty on title will both give you the same protection.
However, if you are purchasing a property built 50 years ago but the seller owned the property in the last 5 years only, you are not protected against title defects for 45 years out of the 50 years of property existence.
The purchase decision, in this case, must be carefully made or perhaps you may need a special warranty deed title insurance.
In essence, the difference between a warranty deed vs special warranty deed is the scope of legal protection offered by the seller to the buyer relating to the property title.
Special warranty deed vs quitclaim deed
What is the difference between a special warranty deed and a quitclaim deed?
In a special deed, the seller makes a statement or declares that there are no third-party claims against the title of the property or no claim has been asserted during the period he or she owned the property.
It’s not a guarantee that no action will ever be taken by a third party to claim the title or assert a claim against the property but in case the issue came during the seller’s period of ownership, the seller will indemnify the buyer and help cure the defect.
However, in the content of a quitclaim deed (or a non-warranty deed), the seller does not make that declaration.
In other words, the seller does not state or make any promises with regards to third party claims.
Under a quitclaim deed, a buyer is not given any assurance that a third party may have asserted a claim or not against the seller at some point in time.
The risk of a quitclaim deed is evidently higher than a special warranty deed.
Protection against title defects
How can you protect yourself against title defects if you are buying a property with a special deed of warranty?
Essentially, there are two ways that you can protect yourself:
- Perform a thorough title search
- Get title insurance
A title search is the process of reviewing and assessing public property records to ensure the title is clear.
Typically, you can hire the services of an attorney or a title company to help you research the historical records relating to the property.
In some cases, a good title search can help you identify liens, mortgages or encumbrances registered against the property that will need to be discharged before the property sale takes place.
As a layer of protection over and above the title search, a buyer can purchase what’s called title insurance.
Title insurance is a specific type of insurance policy providing protection against the risk of a possible title defect or third party claim against the buyer.
This type of policy can be purchased for properties with special warranty properties or general warranty properties.
Insurance companies will generally do a thorough assessment of the property title such as:
- Engaging a title company to do a complete property history search
- Search past judgments
- Search liens registered in the past
- See any possible legal restrictions
- Perform a property survey to uncover potential encroachment issues
- Assess the easements on the property
The result of the title company’s research leads to the issuance of an abstract of title, a document outlining the property history, and title opinion, assessment of the property title.
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