Should I Buy a House with a Special Warranty Deed?

When you buy a piece of property, you will receive a deed that legally proves you own the land and any assets built on it. While the title is used to assign the property to your name, the deed is the legal document that proves this ownership.

When you make an offer on a house, the seller might propose signing a special warranty deed. This offers different protections to the seller and risks for the buyer than a general warranty deed.

In this guide will review what each deed type means and the risks and opportunities of moving forward with different options.

What is a warranty deed? 

A warranty deed transfers a piece of real estate from one person or entity to another. The person who is selling the land is known as the grantor while the person buying the land is the grantee. Essentially, this deed states the grantor owns the property and is legally allowed to sell it to the grantee. 

Warranty deeds prevent fraud. Without these deeds, anyone could sell pieces of property they don’t actually own or claim they owned land and houses they never bought. Even with these deeds in place, title fraud is still a risk that homeowners face.

This occurs when scammers make fake documents claiming they own the property and then try to sell it or take out loans against the equity. 

The title company usually keeps the deed until it needs to be transferred from one owner to the next. 

What is a general warranty deed? 

General warranty deeds are most commonly used in home exchanges. These deeds state that the grantor is legally allowed to sell the property and there are no known claims or liens against it. General warranty deeds cover any claims against the property for the current owner and any former owners before them. 

This warranty deed option provides the most protection to buyers. The grantee can feel confident that no one will make a claim for their property and that they are protected if someone does.  

For example, if the person who owned the home three sellers ago has fines tied to the property, it is not the problem of the current buyer. They will never face legal ramifications or have any financial obligations to settle the debts related to the property because those debts aren’t their own. 

If you aren’t sure what kind of deed you have, you likely have a general warranty deed on your house.  

What is a special warranty deed? 

A special warranty deed is usually preferred by the seller and only applies to the grantor’s period of ownership. A special warranty deed is also called a limited warranty deed because the window of protection is shorter. 

This deed states that the property doesn’t have any liens or fines against it by the grantor that could prevent them from selling the property. 

Special warranty deeds mean the grantee has to handle any issues that arise from former sellers. For example, a homeowner’s association might have a lien against the property from a previous seller. When the new buyer moves into the home, the HOA might try to get unpaid fees from the new owner. 

Special warranty deeds are often used by temporary owners. For example, if a bank takes control of a house after a foreclosure, they will use a special warranty deed because they cannot guarantee that there aren’t other debts and liens on the property. It’s up to the new grantee to settle these debts and remove liens because the owner before the bank couldn’t keep up with them. 

What is included in a deed? 

Whether you opt for a general warranty deed or a special warranty deed, you will encounter specific information that communicates your ownership of the property from the person you bought it from. Make sure each of these elements is included in your deed and that they are correct. 

• A legal description of the property. This includes the lot’s location, size, and amenities like a house built on the land. 
• The grantor’s (seller’s) name. 
• The grantee’s (buyer’s) name. 
• A statement of ownership. This states that the grantor is the official owner of the property and is legally able to sell it. It will also highlight how the seller has no known claims or liens against the property.
• A statement of intent. This highlights how the grantor intends to transfer the property to the grantee.  
• Notarization by a notary public or other qualified official.

Special warranty deeds will include additional information that the grantor is not responsible for the actions of previous owners and any liens they might have left on the house. This isn’t an admission that past liens exist, but simply a removable from responsibility for the seller. A general warranty deed will have similar clauses explaining all that it covers.

Pros and Cons of Buying with Special Warranty Deeds

While special warranty deeds typically benefit sellers, there are a few reasons why buyers might purchase properties with this option. Here are a few pros and cons of buying a property with a special warranty deed. 

Pros

• The warranty deed still protects the buyer. It proves the seller is legally able to transfer the property from their ownership to yours. 
• They are common for foreclosed houses that are sought by investors. You could get a good deal on a home that comes with a special warranty deed.
• These are also common in properties with estate managers, which means the owner has passed without known beneficiaries. A special warranty deed doesn’t necessarily mean there are problems with the property.  

Cons 

• There’s no guarantee that there aren’t past liens on the property. 
• The buyer isn’t protected from issues stemming from previous owners. 
• You may have to settle disputes yourself after you buy the house. 

A special warranty deed isn’t an immediate red flag that something is wrong with the house. Instead, it should be viewed as a reason to research the property deeper before moving forward with the purchase.

Pros and Cons of Selling with Special Warranty Deeds

Buyers aren’t the only ones who need to be careful if they are approached with a special warranty deed. There are also some potential risks for sellers. Here’s what you need to know. 

Pros

• Some sellers will accept any warranty deeds if it means securing the property. 
• You can thoroughly wash your hands of the property once you sell it. The past actions of former owners won’t affect you. 
• The burden to research the property and disclose any previous lines doesn’t fall on you. The special warranty deed makes research the buyer’s job. 

Cons

• Some buyers might be wary about receiving a special warranty deed and might back out from the sale if they think you are hiding something.  
• Sellers are still legally responsible for the information conveyed in the special warranty deed. If the seller cannot legally sell the property or hides liens from the buyer, they could be sued in the future. 
• You might need to hire a real estate attorney who knows how to draft these documents.

Power dynamics play a major role in the buying and selling of real estate. If your house is desirable and you have several buyers, you might be able to request a special warranty deed transaction. However, if your house sits on the market for a long time, you might not be able to present this warranty deed type to potential buyers. There are also times with this option is common. For example, special warranty deeds are often used in commercial real estate deals.

Different Deed Types

There are multiple types of deeds involved with modern real estate transactions. If you have a unique purchase agreement or want a property that is sold under special terms, you might encounter one of these options. Here are a few deeds to know as you explore your options.

Limited Warranty Deed

A limited warranty deed is another term for a special warranty deed. The property title company might use these terms interchangeably or use one specific term for clarity and legal reasons. 

Confirm that the limited warranty is the same as a special warranty deed with all parties involved in the purchase process. This will ensure everyone is on the same page.

Grant Deed

This is a third name for a special warranty deed. This name comes from the legal terms of grantee and grantor. The grant deed passes ownership from one person to the next without protecting the grantee from previous liens. 

If you come across a grant deed in the home-buying process, confirm that it refers to a special warranty deed to anyone who uses it. 

Quitclaim Deed

Also known as a quick claim deed, the quitclaim deed occurs when someone transfers their property without a traditional sale. The name comes from the owner quitting their claim on the deed. Purchases with a quitclaim deed cannot come with title insurance or property title searches. This means there is no way to prove the seller actually owns the property they are transferring. 

This is one of the riskiest deed options out there, which is why it is usually only used for low-risk property transfers. For example, if a parent transfers the deed of the house to a child, the child doesn’t need to research the parent to make sure they are qualified to sell the house. This option is also used to correct property title errors or make adjustments where the deed needs to be updated.

Sheriff’s Deed  

A sheriff’s deed is issued when you buy property at a sheriff’s auction or a county auction that sells seized property. There are many reasons why local governments seize houses from owners. Here are a few reasons why you might buy one of these properties at auction:

• The house was foreclosed on due to unpaid property taxes.
• The homeowner was ordered to pay damages in court and never did. 
• The house was used as collateral for a debt that went unpaid.  
• The house was condemned.  

These types of houses are usually bought by investors who agree to purchase the properties sight unseen. Not only are they unable to tour the property first and complete an inspection, but they can’t do title research.

Sheriffs’ deeds, like special warranty deeds, confirm that the seller’s ownership of the property was temporary and they are unaware of any outstanding claims against it.  

Steps to Take When Considering a Special Warranty Deed Property

You don’t have to walk away from a property with a special warranty deed. Instead, you can take steps to make sure you are protected and can completely enjoy the house once you close on the deal. Follow these steps to protect this asset and your finances through the purchase process.

Conduct Comprehensive Title Research

Do your research on the property to understand any risks that come with it. You can learn about the history of the home from the current owner back through past sellers. This will make you more confident when signing a special warranty deed. Your real estate agent can help you with a title search so you understand a property’s entire history. Here are a few things that might come up: 

• Previous ownership disputes. 
• Liens on the property from past owners. 
• Town zoning ordinances related to the house. 
• The existence of all mortgages currently taken out on the home. 
• Pending foreclosures. 
• Potential code violations, denied permits, or fines for unpermitted work. 

Title companies understand that buyers want to learn about the properties they are purchasing. They should be able to quickly pull records from a variety of sources, including the county clerk’s office, the local courthouse, and any financial institutions related to the house.

Seek Legal Advice

If you aren’t sure about buying a house with a special warranty deed, contact a real estate attorney. They can look over the information provided by the title insurance company and review the risks that come with this option. Your attorney might provide options to protect yourself or do additional research to learn about past claims and liens. 

Building a support team of lawyers and agents can make you more confident when taking ownership of the property. You will have someone on your side to help you overcome any legal issues with the house.

Consider Title Insurance

Title insurance is a one-time premium you pay when you purchase the property. It is different from homeowner’s insurance as it only protects your ownership and right to the deed. Title insurance is usually 0.5% to 1% of the home’s sale price. If you buy a $500,000 home, then your title insurance will fall between $2,500 to $5,000. 

This insurance can protect you if someone claims that they have a right to the property after you purchase the house. It is particularly useful when dealing with special warranty deeds. You can move forward with the home purchase knowing that you are protected. 

Even if you have a general warranty deed, ask your real estate agent whether title insurance is right for you. This one-time purchase might give you peace of mind for the duration that you live in the house. 

Don’t Fear Special Warranty Deeds

Understandably, you want to do your due diligence before buying a home. If a seller offers a special warranty deed, you might wonder if they are trying to hide something. However, if you do your research and work with a trusted real estate attorney, you can feel confident in your home purchase. Also, look into title insurance if you purchase a home that comes with a special warranty deed. 

To learn more about your deed options and what they mean, work with a real estate agent who understands your needs. Interview multiple Realtors and choose one that is knowledgeable and cares about you. When you are confident in the people you hire, you can feel good about your future home purchases.

Try FastExpert today and find a Realtor who knows their deeds. Whether you opt for a general warranty deed or a limited warranty deed, you can have a clear understanding of what they mean.