What Is A Special Warranty Deed? A Guide

The last thing you want when you’re closing on a home is for title defects to surface, or worse, someone knocking on the door years later claiming title rights to your property.

A special warranty deed in real estate guarantees that there are no liens or claims against the property, but it doesn’t guarantee a clear title prior to the seller’s ownership of the property. Most transactions won’t require a special warranty deed, but it’s useful to know how it works.

Special Warranty Deed Definition

A special warranty deed is a legal document used in real estate transactions where the seller – known as the grantor – guarantees against any debts or defects that occurred during their ownership of the property. It does not include issues that existed before the grantor came into possession of the property. A special warranty deed also goes by other names, including covenant deed, grant deed and limited warranty deed.

When Are Special Warranty Deeds Used?

Special warranty deeds are common with commercial real estate transactions or when the property’s history is unknown. Residential real estate transactions typically use a general warranty deed.

Here are several situations in which a buyer may come across a property with a special warranty deed:

• Estate sales: A special warranty deed may be necessary with estate sales where the person responsible for administering the estate does not know the history of the property prior to the owner passing away.
• Foreclosures: When buyers purchase foreclosed properties, there may be a lien or an outstanding liability. If you don’t take the proper precautions when buying a foreclosure, you may have to pay back taxes to remove existing liens from the property.
• Commercial properties: Special warranty deeds are common in commercial real estate. Business properties typically go through several owners, such as office buildings or retail stores, and a special warranty deed can help protect the current owner from liens, foreclosures or other unknown issues.

Special Warranty Deed Vs. General Warranty Deed

There are multiple types of warranty deeds that can apply in different situations. Each type provides a different level of protection for someone in the process of buying a house. A general warranty deed is another common type of protection used in real estate deals.

A general warranty deed guarantees that the property is free and clear of liens or claims against the property, and the current owner has the legal right to sell the property. If a claim arises, the seller is responsible for compensating the buyer.

A special warranty deed is a guarantee that there are no problems with the title from when the current seller owned the property. This type of deed does not protect buyers if someone else declared they had a claim to the property or if there’s a lien from years prior. Special warranty deeds protect sellers, and buyers are responsible for any legitimate claims.

Warranty deeds provide some level of protection for the buyer or seller, but there’s still a chance that someone could make a claim against the property. Title insurance offers the highest level of protection, which is why mortgage lenders always require the borrower to purchase a lender’s title insurance policy before getting a home loan.

Title companies research the title to verify that the seller has the legal right to sell the property and provide insurance meant to protect the buyer and lender from damages and financial losses due to a bad title or title defects. If the seller can only offer a special warranty deed, it’s in the buyer’s best interest to purchase a separate owner’s title insurance policy.

Pros And Cons Of Special Warranty Deeds

Here’s an at-a-glance table showing the pros and cons of special warranty deeds.

Special Warranty Deed FAQs

Below are the most frequently asked questions related to special warranty deeds.

Should I buy a house with a special warranty deed?

A special warranty deed protects sellers from title claims or encumbrances prior to ownership, but buyers are responsible if any claims should arise. The best level of protection for a buyer is a general warranty deed and an owner’s title insurance policy. Lenders typically require a lender’s title insurance policy.

What type of warranty deed is best?

The best type of warranty deed for a buyer is the general warranty deed. It guarantees a free and clear title throughout the property’s history, and the seller is financially responsible for potential claims. However, title insurance offers the best coverage.

Does a special warranty deed transfer ownership?

A special warranty deed affirms the grantor’s legal ownership of the property and transfers rights to the buyer. The grantor guarantees a free and clear title during their ownership of the property, but a special warranty deed does not guarantee protection for issues prior to the grantor’s ownership.

What are the disadvantages of a special warranty deed?

A special warranty deed only protects the grantor, or seller. If a title issue comes up, the buyer is responsible for any claims. A special warranty deed doesn’t replace title insurance, and it’s often recommended that buyers purchase their own title insurance policy.

The Bottom Line: Special Warranty Deeds Offer Limited Protection For Home Buyers

A special warranty deed is a useful tool for sellers who can guarantee that there are no outstanding claims or liens against the property that occurred during their ownership. However, there’s no assurance about issues from previous owners. The best level of protection is a general warranty deed, but if this isn’t possible, then an owner’s title insurance policy is recommended.

Ready to buy a home? You can start your home buying journey today by applying for a mortgage.