What is a Special Warranty Deed?

A special warranty deed is a real estate deed in which the grantor, or property seller, only offers a guarantee against events that happened while the property was in their physical possession. Put differently. The grantor made no warranties about any apparent title problems before they acquired the property.

How a Special Warranty Deed Works

Commercial real estate transactions are the most frequent use case for extraordinary warranty deeds. A general warranty deed is often used in single-family homes and other residential real estate transactions. A lot of mortgage lenders want the general warranty deed to be used.

Certain states refer to extraordinary warranty deeds as limited, covenant, and grant deeds. The guarantee only applies to the seller’s property under a specific warranty deed. Extra warranty deeds do not cover mistakes in a free-and-clear title that may exist before the seller’s possession.

Therefore, only debts, issues, or other encumbrances to the title that the grantor of a special warranty deed produced during their property ownership make them accountable. The recipient assumes any problems resulting from the prior owners.

Deed of General Warranty

In addition to transferring ownership or title to residential or commercial real estate, a warranty deed includes specific seller warranties. Among these assurances are the statements that the property title is being transferred free and clear of any liens, mortgages, or other encumbrances held by parties other than the seller.

A general warranty deed ensures that the property is free and clear of any flaws or encumbrances, regardless of when they occurred or whose ownership it was. It covers the whole history of the property. The general warranty deed reassured the buyer that they were acquiring complete ownership rights without any legitimate legal concerns about the title.

In the US, the most popular and widely used kind of document for transferring real estate titles is the general warranty deed.

Difference between a General and Special Warranty Deed

A limited warranty deed, also called a special one, is a general one. Although the term “special” could convey to a customer that the warranty deed is of superior quality, the special warranty deed is not as extensive. Because of the shorter period it covers, it provides less protection. Extraordinary warranty deeds are often used in home foreclosures and forced real estate sales to settle debts.

Consider a house with two prior owners before you, for example. The home and yard were ruined since the former owner was a hoarder. Fines levied against the owner by the city’s code enforcement division were affixed to the property. When the owner failed to make mortgage payments, the bank foreclosed and sold the house to a new owner.

The new owner fixed up the home and cleaned the yard, much to the delight of the neighbors. They list the house for sale after ten years, and you purchase it with a unique warranty deed. You decide to sell the residence a few years later. However, the code enforcement liens could complicate your sale since they are still attached to the property. To release the title, you will need to, at the very least, pay off the city’s debt.

Comparing Special Warranty Deeds with General Warranty Deeds

The general and particular warranty deeds specify the following:

• The grantor’s, or seller’s, name
• The buyer’s or grantee’s name
• The property’s actual location

Except for the encumbrances specified in the deed, the property is free of debt.

• The grantor guarantees they are the property’s legitimate owner and legally authorized to transfer ownership.
• The grantor guarantees that the property is free and clear of liens and that no creditor is currently using the property as collateral for any pending claims.
• It is guaranteed that the title would survive any attempts by other parties to claim the land as their own.
• The grantor will take all required steps to restore the grantee’s title to the property.

Advantages

• The title to the property may be transferred between the seller and the buyer under certain guarantees.
• By purchasing title insurance, you might lower the risk of prior claims against the special warranty deed.
• It comes in handy when purchasing a foreclosed home.

Cons

Buyers or grantees have limited protection under extraordinary warranty deeds.

Extraordinary warranty deeds merely extend the grantor’s or seller’s ownership term.

For residential buildings, extraordinary warranty deeds are only sometimes used.

A Special Warranty Deed example

There is one situation when the special warranty deed becomes the standard, even if general warranty deeds are more typical in residential real estate transactions. Real estate-owned (REO), short-sold, and foreclosure properties are welcome in this arena.

This kind of deed sells most homes held by banks, Housing and Urban Development (HUD), and the Federal National Mortgage Association (FNMA). The selling authority’s desire to avoid liability for any circumstances about the property before the seizure may be a primary motivation for using extraordinary warranty deeds.

For instance, a couple who owned a house in Grenada County, Mississippi, missed their loan payments in 2012. Wells Fargo Bank, their lender, foreclosed on the home in February 2013. According to later court records, Wells Fargo “conveyed the Property to FNMA in a special warranty deed.”

Particular Points to Remember

A title search often reveals liens or claims against a property’s title. An examination of publicly accessible data to ascertain property ownership is called a title search. Attorneys, title companies, and individuals can all conduct title searches to confirm property ownership. Even though these searches are thorough, there’s always a chance that something may need to be fixed.

Because of this, when purchasing a property, most buyers—regardless of the kind of warranty deed they choose—also get title insurance. An indemnity insurance policy known as “title insurance” shields buyers against monetary claims against the title of real estate they own.

Why Would Someone Use a Special Warranty Deed?

You’ll probably need to employ a special warranty deed if you’re buying or selling commercial real estate.

A General Warranty Deed: What Is It?

A general warranty deed is often used in transactions involving the purchase of a house or other residential property by you and your mortgage lender.

What Other Names Might Be Applied to a Special Warranty Deed?

Covenant deeds, grant deeds, and limited warranty deeds are examples of “special warranty deeds” used in the real estate sector.

Conclusion

• In a special warranty deed, the seller of real estate only provides a guarantee against issues or encumbrances in the property title that arose while he was the owner.
• A special warranty deed guarantees two things: that the grantor is the owner of the property and that it is tradeable, and that there are no encumbrances on the property while he is the owner.
• A special warranty deed has more restrictions than the popular general warranty deed, which covers the property’s history.
• The buyer is given the same broad protections under special and general warranty deeds.
• A unique warranty and a standard warranty deed vary primarily in handling the duration of protection granted to title ownership.