You Have the Deed and Keys to Your New Home. What About a Guarantee?

Image of real estate documents with a padlock through them. Keys are in the padlock. Captioned: You have the deed and the keys to your new home. What about a guarantee?

A new owner of real estate receives a real estate deed. But what about a real estate deed warranty? What are the common deeds, and what assurances do different deeds make? Here’s what’s at stake for a new owner, depending on the deed involved in the real estate sale.  

The Quitclaim Deed: No Guarantees

A quitclaim simply conveys legal ownership of property from one person to another. There is no warranty, so there can be no recourse to the law for a breach. Simply put, the recipient has no guarantee that the property comes without liens or encumbrances. The recipient gets whatever interest and whatever title status the grantor had, and no more.

When the people involved have no question about the ownership interest being transferred, the quitclaim deed is a simple and helpful instrument. A quitclaim deed can enable one family member to transfer an ownership interest to another member of the family. It may be used when one divorcing spouse relinquishes ownership to the other. The key point is that the title status is not in question. Insofar as there are no liens, and no other issues that could catch you unaware, a quitclaim deed can do the job of transferring someone else’s interest over to you. 

The General Warranty Deed: Preferred for Most Real Estate Sales

A general warranty deed (often simply called a “warranty deed”) covers any issues that could arise out of the entire chain of title. In arm’s length (non-family) transactions, a general warranty deed is the best assurance that a seller actually does own the property you’re buying. If there are any problems later, you will have legal grounds to sue your seller for breach of warranty.

Examples of problems are:

  • Mistakes in the legal descriptions, or recording errors.
  • Disputed boundaries.
  • Unrecorded easements.
  • Unknown prior conveyances of interests, or unsatisfied liens.
  • Deed forgeries.
  • Missing wills or heirs.

When you get a warranty deed, you’re assured that no liens or encumbrances exist that aren’t obvious on the deed, so you won’t be bothered by unexpected title claims by any other claimants to your property. The seller is obliged to defend you against any claimant, and compensate you for any resulting damages.

Yet fortunately for today’s buyers, title insurance is protection against any problems lurking in the chain of title. Insurance is important even when a warranty deed is used. The insurance policy covers claims that the seller couldn’t account for, such as local ordinances and zoning issues.

The Special Warranty Deed: Splitting Risk Between Grantor and Grantee

A special warranty deed provides a lesser guarantee of ownership of the property, and a lower level of protection from the risk of title defects. The seller is liable for any title problems during the time the seller had the property, while you, the buyer, must resolve issues from earlier in the chain of title. Thus, special warranty deeds are also known as limited warranty deeds

Special warranty deeds commonly appear between businesses in commercial real estate transactions. They also appear in probate court, where a personal representative has no knowledge of a home’s history before the probate process. ‚Äč

Why do we say this deed is splitting risk? Because when you acquire property with a limited warranty, a future claim could arise from a time that dates back to an ownership at some point in the past. In that case you might have no recourse against the person who conveyed the home to you. Your title insurance may not extend coverage back to a lien or mortgage claim against an earlier owner, and you may have no choice but to resolve the debt.

The Grant Deed: Not a Title Warranty

A few states, such as California, permit the use of grant deeds. A grant deed gives you protections a lot like those of a warranty deed. You’re safe from claims that someone else still owns an interest or has a lien on your home.

But your grant deed is not a warranty against third-party claims. Specifically, the grant deed assures you that the seller did not transfer an interest in the property to anyone else, and it means that the property has no encumbrances that aren’t obvious on the deed. It is not a warranty of title. 

Because of this limitation, it’s vital to speak with a title insurance company and an experienced attorney, to understand your recourse in the case of a future third-party claim or unknown title defects.

Why do people use grant deeds? They require no property tax value assessment. Where states allow them, they often come into play during divorce proceedings. They assure you, the grantee, that you aren’t getting property that’s already been purchased by someone else.

Words to the Wise

When you’re buying a home, a title search is an important tool for spotting issues that could date back to past ownerships. If the title company is satisfied with the results of the search, it will offer a title policy. This can provide vital coverage, relieving you of the costs of resolving claims arising at any point after you have bought your new home.

In short, a title search assists you by spotting potential claims before you put the property in your name. Title insurance protects your investment from claims over issues that a title search might have overlooked.

To ensure lawful transactions and avoid making costly errors:

  • Always use a deed drafted to meet the precise and current standards of the state and county in which the property is located.
  • Unless your new home is in Iowa, you might want to consider purchasing an owner’s title insurance policy. (This is not the same as the lender’s title insurance. You pay for that to protect your mortgage lender. Owner’s title insurance is available separately.)

A home property is the most significant investment most of us will ever make. Be sure you’re protecting yours against unexpected claims.