Should I Buy a House With a Special Warranty Deed?

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Key takeaways

  • Learn why a home might have a special warranty deed.
  • Understand the risks of a special warranty deed before buying a home.
  • See how title insurance can protect you from potential title issues.

You’ve been shopping for a home, and you found one you’re interested in buying. But then you learn that the property has a “special warranty deed.” Now you’re wondering, “Should I buy a house with a special warranty deed?”

When buying a home, the type of deed can significantly impact your ownership rights and responsibilities. In this guide, we’ll break down the essentials of a special warranty deed, when it’s used, and the potential risks involved.

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What is a deed?

A deed is a legal document that transfers ownership of real estate from one party to another. It outlines the property’s boundaries and includes the names of both the buyer and the seller. To be legally binding, deeds must be signed, notarized, and filed with the local county recorder’s office.

What is a warranty deed?

A warranty deed is a type of deed in which the seller guarantees that they hold clear title to the property and have the right to sell it. This deed provides the most protection to the buyer because it assures that the property is free from any outstanding debts, liens,, judgments, or other encumbrances, both during the seller’s ownership and prior.

What is a special warranty deed?

A special warranty deed offers a more limited guarantee than a general warranty deed. It only covers claims and issues that arose during the seller’s period of ownership. This means that if there are any title issues from before the seller owned the property, the buyer is not protected.

Depending on where you live, a special warranty deed may be known as:

  • Covenant deed
  • Grant deed
  • Limited warranty deed
  • Statutory warranty deed

Deed vs. title

  • Deed: A document that transfers property ownership from seller to buyer.
  • Title: Legal concept of property ownership, including the rights and responsibilities that come with owning property.

Why might a property have a special warranty deed?

1. Commercial property transactions

Sellers often use special warranty deeds in commercial property transactions. Commercial properties typically have more complex histories, and sellers do not want to be responsible for issues that occurred before they owned the property.

2. Estate property transactions

When a property is inherited through an estate, executors or administrators may use a special warranty deed. They only guarantee the property’s title during the time the deceased owned it, not prior. This protects the estate from unforeseen claims.

3. Foreclosure property sales

Foreclosure property sales often involve special warranty deeds. Banks or financial institutions selling the foreclosed property only guarantee clear title during their period of ownership. They won’t cover any issues that existed before they took possession through foreclosure.

4. Acquiring a property in a divorce settlement

In divorce settlements, a special warranty deed is sometimes used rather than the traditional quitclaim deed, especially when the separation is less than amicable. A special warranty deed ensures that the transferring spouse only warrants the title for the duration of their ownership. This way, they are not liable for any title defects that arose before they acquired the property.

Should I buy a house with a special warranty deed?

Buying a house with a special warranty deed can be a viable option, but it’s essential to understand the implications and the steps to take to protect your interests. This type of deed provides limited protection, covering only the period when the seller owned the property. For many homebuyers, especially those in residential transactions, this might feel less secure compared to a general warranty deed.

However, special warranty deeds are common in certain scenarios, such as commercial or foreclosure properties. If you’re considering a home with this type of deed, it’s crucial to invest in a thorough title search and purchase title insurance. These steps can help protect you from potential title issues that occurred before the seller’s ownership.

When not to buy: Real estate professionals generally advise their residential clients not to buy a house with a special warranty deed if they don’t have title insurance.

Ultimately, deciding whether to buy a house with a special warranty deed depends on your comfort level with the risks involved and your willingness to take extra steps to secure your investment. Consulting with a real estate attorney or a top real estate agent can provide additional guidance and peace of mind.

What does title insurance do?

Title insurance protects you from financial loss due to defects in a property’s title. When you buy title insurance, a title company will perform a thorough search of public records to identify any issues or claims against the property. If any problems are found after the purchase, the insurance policy will cover the costs associated with resolving them.

This insurance is essential when buying a house with a special warranty deed, as it provides an additional layer of protection against title defects that the seller does not cover. Title insurance ensures that you are not financially responsible for any unforeseen claims or disputes over property ownership that might arise after you take possession.

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Weigh the risks of buying a house with a special warranty deed

Buying a house with a special warranty deed comes with risks due to its limited protection. If you’re unable to establish a clean title and obtain title insurance, here are some potential risks to be aware of:

  • Historical title issues: Since a special warranty deed only covers the period when the seller owned the property, any title problems from previous owners are not guaranteed. This could include unresolved liens, unpaid taxes, or boundary disputes.
  • Potential legal disputes: If there are any claims against the property that originated before the seller’s ownership, you may face legal disputes or financial obligations to resolve these issues.
  • Limited seller liability: The seller is not responsible for any title defects that occurred before they owned the property, leaving you to deal with any problems that surface.

Other types of deeds

There are a number of other types of deeds you might encounter in real estate transactions in your state, each offering different levels of protection or designed for different uses:

  • General warranty deed: Provides the highest level of protection to the buyer. The seller guarantees that the title is free from any defects or claims, both during their ownership and prior.
  • Quitclaim deed: Offers a low level of protection. The seller transfers their interest in the property without making any guarantees about the title’s status. This type of deed is often used in transfers between family members or to change the name on a title, such as after a marriage.
  • Bargain and sale deed: The seller implies they hold title to the property but makes no warranties against any title defects. This deed is often used in tax sales or foreclosure auctions.
  • Gift deed: Used to transfer property ownership without any exchange of money. Often used for gifting property to family members, it may come with or without warranty of title.
  • Mortgage deed: A document that secures a loan by transferring an interest in the property to the lender. The borrower retains ownership but grants the lender a lien on the property until the loan is paid off.
  • Survivorship deed: Used by joint tenants with right of survivorship, ensuring that when one owner dies, their interest in the property automatically transfers to the surviving owner(s).
  • Deed of trust: Similar to a mortgage deed, a deed of trust involves three parties: the borrower, the lender, and a trustee. The property is held in trust until the loan is repaid.
  • Contract for deed: An agreement where the buyer makes payments directly to the seller until the full purchase price is paid. The seller retains the title until the final payment is made.
  • Sheriff’s deed: Issued to the highest bidder at a public auction, typically following a foreclosure or court-ordered sale. It transfers ownership but may come with limited warranties.

Partner with a top agent to buy with confidence

Buying a house with a special warranty deed can be complex, but you don’t have to navigate it alone. Partnering with a top real estate agent can provide you with the expertise and guidance you need to make an informed decision.

HomeLight can connect you with the highest-rated agents in your area, ensuring you have a trusted professional by your side throughout the buying process. With their help, you can confidently assess the risks and benefits of a special warranty deed and secure your dream home with peace of mind.

Buying and selling at the same time? Explore HomeLight’s Buy Before You Sell program to help take the uncertainty out of your next home purchase. Below is a short video illustrating how HomeLight Buy Before You Sell works:

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