What is Warranty of Title, Warranty Deed and Types of Warranty Deeds

 What is Warranty of Title?

A warranty of title is a seller's assurance to a buyer that the seller has the authority to transfer ownership and that no other party has any claim to the property. In addition, a warranty of title may be used to ensure that no other party has copyright, patent, or trademark rights to the transferred property.

Understanding About Warranty of Title

A warranty deed includes a formal warranty of title and is used to legally transfer property during a sale. This document ensures that the seller has the legal authority to transfer the property that no other entity, such as the Internal Revenue Service or even an ex-spouse, has a lien or claim on the property. The warranty of title in a warranty deed protects the buyer's interests and gives the buyer legal recourse if a subsequent claim is made on the property.

Other types of deeds, including quitclaim deeds, do not provide a title warranty. There is no assurance of a clear title, but the grantor effectively relinquishes their interest in the property by signing over the deed. If a question of ownership arises in the future, the buyer would not be protected by a warranty of title.

How the Warranty of Title Used to Confirm a Transaction

Most sales include a warranty of title, but if the seller is acting as a representative, there may be no warranty of title. This could occur during an auction, sheriff's sale, or estate sale. In these instances, the person selling the property is not the owner and may be unaware of any other entity's rights to the property.

If there is a claim or problem attached to the property, a warranty of title can provide the buyer with legal recourse to sue the seller. A prior owner's heir may have an unresolved claim to the property that was not disclosed by the seller. The purchaser could file a lawsuit to recover the money they spent on the purchase as well as damages.

Continuing disputes over the property's boundaries can present additional obstacles to the closing of a transaction. The adjacent property owners may assert that the property lines differ from what the seller presented to the buyer. There could be tax and bill liens, further complicating the transaction.

If the property is completely devoid of encumbrances and ownership has been properly established, then the property has a clear title and the seller may provide a warranty of title free of encumbrances.

What Is the Warranty Deed?

A warranty deed is a legal real estate document that protects the buyer and guarantees that the seller holds a clear title to the property, has really no outstanding liens or mortgages, and that there will be no future claims to the property's title.

The parties to a warranty deed are the seller, also known as the grantor, and the buyer, also known as the grantee. Either party can be either an individual or a business.

Most lending institutions or lenders require a warranty deed for properties when they finance.

• A warranty deed protects the buyer & ensures that the seller has a free and clear title to the property, free of any liens or mortgages.

• A warranty deed is a legal real estate document that safeguards the purchaser against future claims to the property's title.

• The majority of lenders require a warranty deed for the properties they finance. • The seller of a property is referred to as the grantor and the buyer as the grantee.

How Warranty Deeds Work

A deed is a legal document that transfers real estate property from one party to another, such as a seller to a buyer. During a real estate transaction, a title company conducts a comprehensive title search of the current and past ownership of the property to determine if there are any defects or issues that have affected the title during past ownership.

A warranty deed holds the seller, or grantor, liable for any breach after the title search, even though the breach occurred without their knowledge or during a time when they did not own the property. It ensures that the purchaser is not liable for any past title defects or encumbrances.

During the closing of the sale, the warranty deed is delivered to the grantee. It contains an accurate legal description of the property of been conveyed, is signed and witnessed in accordance with the state law where the property is located, includes legal words of conveyance stating that the seller is granting the property to the buyer, and provides evidence of the amount of money or other consideration paid for the property.

Types of Warranty Deeds

General Warranty Deed

• The grantor warrants that they are rightful owner of the property and have the legal authority to transfer the property's title in a sale.

• The grantor warrants that the property is free and clear of all liens and that there is no outstanding claims on the property from a creditor who may claim it as collateral.

• A guarantee that the title will withstand any claims of ownership by third parties.

Special Warranty Deed

• Conveys that the grantor holds the title and that the property has not been encumbered during the grantor's ownership period of the property.

• The grantor does not guarantee against any defects in clear title which existed before they took possession of the property.

How to Get a Warranty Deed

Both buyers and sellers can obtain a warranty deed with the assistance of a real estate agent or attorney. Whether you are purchasing or selling a property, a warranty deed can protect you from title problems.

As a seller or grantor, having a warranty deed in place will reassure prospective buyers about the property. When investing in real estate, a purchaser will likely seek the greatest level of security and peace of mind. A warranty deed can result in a mutually beneficial transaction if there are no outstanding liens or claims on the title of the property.

Other Types of Deeds

• The quitclaim deed transfers property from one person to another without a sale, typically between members of the same family or during divorce proceedings. Once the deed is signed, all claims to the property are renounced, and a quitclaim deed prohibits the owner from having any future interests in the property.

• A deed in lieu transfers the property to the lender through with a deed in lieu of foreclosure whenever a borrower defaults on their mortgage as well as avoiding registering the foreclosure on borrower's credit history.

• A special purpose deed is utilized during court proceedings and permits those acting on behalf of the property to transfer property without incurring personal liability.

What is the distinction between title insurance and a warranty deed?

A title company performs a title search and examines public records for any problems or inaccuracies. The warranties and disclosures in a general warranty deed allow the new owner to hold the previous owner liable in the event of a title defect or a claim against the title. Title insurance protects against a broader range of potential claims than the general warranty deed, such as competing estate wills and tax liens.

Examples of Claims Protected by Warranty Deeds?

A buyer or new owner will be protected from previous owner's fines issued for code violations or if a previous owner failed to pay HOA fees.

What Are the Risks of Warranty Deed?

In contrast to a general warranty deed, the seller is not responsible for any title issues that may have arisen before they acquired ownership. This creates a risk for the buyer, as they will have no legal protection for any potential title issues that may arise after the closing of the real estate transaction.

The Bottom Line

A warranty deed is a real estate document that guarantees that the property has a clear title and that the seller does not have any outstanding liens or mortgages. The combination of a warranty deed, a title search, and title insurance offers the highest level of protection to a real estate purchaser and ensures that there are no defects in the title and that no future claims will be made against the property title.