Are you looking to buy a new home? Congratulations! Whether you are a first-time homebuyer or searching for your forever home, purchasing a house is a big, expensive commitment. As such, homebuyers must consider potential pitfalls and take the necessary precautions to ensure the safety of you, your family, and your beloved new home. A warranty deed is one of your best defenses in this case. Let’s take a look at what warranty deeds are and why you may need one.
It might be a cliché, but knowledge is power. Buying property is a complicated legal process and the more knowledge you acquire, the better equipped you are to handle a real estate transaction. It is always in your best interest to know what you’re getting into before it’s too late to do your research. Whether it’s finding a real estate agent, a law firm, or learning about title insurance or a title search, it’s important to educate yourself before finalizing the deal.
A warranty deed is a critical piece of the puzzle when it comes to buying real estate and taking on ownership of the property. When you’re buying a property, you want to make sure it’s free of any mortgages, liens, or other encumbrances. Or at the very least, you want to know about them. This is what the warranty deed will do for you: guarantee your new investment is free and clear of any of these issues.
What is a Warranty Deed?
In a nutshell, a warranty deed is a legal document where the grantor guarantees that the property is legally owned by the seller and is free of any mortgages, outstanding liens, or other encumbrances. Encumbrances include third-party outstanding claims against the property, such as easements or property tax liens.
What this warranty deed means for you, as the grantee, is that the seller assumes the full risk for any legal claims to the property, and warrants that they are responsible for any and all title problems, even if they were unaware of the problems, or if they occurred prior to their ownership. Essentially, it ensures that the seller is the rightful owner and is legally able to transfer the free and clear title to the new owner.
Do you need a warranty deed?
How warranty deeds work
Warranty deeds work to protect the grantee’s title by guaranteeing that the seller has legal ownership of the property. Along with legal ownership, a warranty deed states the seller does not possess any outstanding liens, mortgages, or third party claims on the property. Thus, the property is free to transfer ownership to the buyer.
Each warranty deed must include the date of transaction, the names of all parties involved, a physical description of the property, and the appropriate signatures. All signatures must also be signed in the presence of a notary public, otherwise the signatures are not legally binding.
Covenants and protections
Covenants are just a fancy word for promises, and there are three major ones that the warranty deed delivers:
- It guarantees that the grantor is the rightful owner and holds the title to the property, which is free and clear of any liens or mortgages.
- You can have confidence that the title will withstand any third-party claims of ownership.
- It guarantees that the grantor will do everything needed to ensure the grantee’s title to the property.
Types of warranty deeds
General warranty deed
Almost always used in residential purchases, general warranty deeds are your best protection from any future claims to the title, and it is a required document when seeking a mortgage or if title insurance is going to be purchased.
Special warranty deed
Generally used more in commercial real estate transactions, special warranty deeds do not have as many protections as general warranty deeds. Basically, special warranty deeds state that the grantor has received the title, is the owner, and that the property was not hampered with debts or had other title issues while the grantor owned it. Unlike the general warranty deed, it does not give the grantee protections against what might have occurred prior to the sale from the previous ownership of the property.
Quitclaim deeds are usually used to transfer property between family members, such as in cases of divorce or inheritance, when there is no sale involved. The quitclaim deed provides less protection than other deeds because it presumes the trust is already there between the two parties. It releases the grantor’s interest and liability in the property upon signing, and the grantee agrees to assume all risks and conditions of any other claimants to the title of the property. In the case of divorce, for example, the owner that is moving out signs away any rights to the property, as well as any responsibility for liabilities.
Deed in lieu
Oftentimes when a borrower defaults on their mortgage, they may choose to transfer the property to the lender with a “deed in lieu of foreclosure.” This is beneficial to the borrower as it can help them avoid having a foreclosure on their credit report, which is obviously very damaging to their credit rating. It’s also useful for the lender because foreclosures can incur expensive legal fees and they take time, which can often leave the property unoccupied and relatively unprotected from damage caused by looters, or even property owners who know they are about to get evicted.
Special purpose deed
Special purpose deeds are usually used in connection with court orders or court proceedings or with someone acting in an official capacity for the property. For example, a special purpose deed would be used in the case of a house being sold to pay for back taxes. A deed in lieu is a type of special-purpose deed often used in residential real estate transactions.
When are warranty deeds used?
They are used in almost all real estate transactions, both commercial and residential, in various forms. But the general warranty deed is required whenever a residential property is changing hands — specifically being sold rather than being given up by one party or another due to circumstances, such as a death in the family or a divorce where no sale actually occurs.
How to get a warranty deed
Usually, a warranty deed will be part of the package that includes all of your legal documents in the process of purchasing a property new to you. However, if you’re unsure, you can ask your real estate agent or even download a template online. Remember that all warranty deeds must include the date of transaction, the parties involved, a description of the property, and the appropriate signatures, as witnessed by a notary public.
Buying a piece of real estate may be one of the most difficult and expensive decisions you ever make. As is the case with marriage, this is not a contract you want to take lightly. Don’t expect to go into the transaction blindly, hoping your realtor and legal counsel will always look out for your best interests. This is why you need to do your research and be certain that a general warranty deed is in place.
It can’t be stressed enough how important this legal document is for the protection of you, your family, and your new home. The title absolutely needs to be free and clear so that you don’t encounter any unexpected problems down the road. The warranty deed, along with a title search and title insurance, provides protection for your investment.
Who benefits the most from a warranty deed?
Hands down, the buyer benefits the most from this type of deed. The greatest risk is to the seller who assumes all responsibility for any and all breaches to the property regardless if they occurred without their knowledge or before they even owned the property. This is why it’s so important — and often required — to have the warranty deed drawn up by your lawyer or real estate office prior to purchasing a new home. You also need it to obtain a mortgage on the property.
Does a deed mean you own the house?
No. There’s the difference between the terms deed and title. The deed guarantees that the grantor owns the house and is legally allowed to it to sell it to you. However, you do not actually own the house until the seller legally transfers the title into your name.
Is a warranty deed a contract?
No, a warranty deed is not a contract. A contract is transactional, where, for example, the grantor agrees to sell me a house only if I promise to pay the decided amount. A deed differs in that it is usually enforceable even with a lack of consideration. Consideration is defined as an act or forbearance or the promise thereof done or given by one party in return for the act or promise of another. In layman’s terms, the grantor agrees to sell you a house with a free and clear title and is responsible for ensuring there are no title problems. You aren’t promising anything in return on a warranty deed.
Is a warranty deed better than a quitclaim deed?
The short answer is yes, if you do not know the seller. It gives you as a buyer the maximum allowed protection that you are getting a free and clear title. However, if you know and trust the seller, a quitclaim deed can be a reasonable and safe alternative to the general warranty deed.
Is a warranty deed a mortgage?
No, but you will likely need one to obtain a mortgage. A warranty deed will show that your title is free and clear and that you are now the legal owner of the property. This will come in handy when securing lending services.
Does a warranty deed prove ownership?
No. The warranty deed means the previous owner can guarantee that no one else has ownership or is owed money for the property in question. You are not considered to be the owner of the property until the title is transferred to you.
Do I need a warranty deed and a title search?
Yes. This offers another layer of protection for the buyer to verify what the warranty states. Most lenders will require the owner to have a title search to look at public records and find any issues. Remember, your house is your collateral for the mortgage.
Do I still need title insurance?
Yes. Pretty much all lenders require title insurance. Additionally, the title insurance covers a broader range of problems than the general warranty deed, such as zoning issues or government regulations.
- If you’re buying a house, especially if you require a mortgage, you need to have a general warranty deed for your own protection.
- The general warranty deed provides the buyer with the highest form of protection from property title defects.
- The general warranty deed, combined with a title search and title insurance, gives the buyer the most comprehensive layers of protection from third-party claims.
- While there are other types of deeds for real estate transactions, they are usually for very specific cases and don’t offer as much protection for the new property owner.