Whether you are buying or selling real estate, it is essential to understand the nature and use of a warranty deed.
Types of Deeds
A deed is a legal document that transfers title to real property from one person to another. A "person" can be an individual, a business entity (such as a corporation or LLC), a trust, or an estate. The person transferring title is called the transferor, or the grantor. The person receiving the property is called the transferee, or the grantee.
There are two basic types of deeds: quitclaim deeds and warranty deeds.
Quitclaim deeds. With this type of deed, the grantor is saying, in essence, "I'm giving the grantee whatever interest I may have in this property." A quitclaim deed does not guarantee that the grantor actual has an interest in the property. If it turns out that the grantor does not have title to the property, or there are any problems with the title, the grantee cannot sue the grantor.
Warranty deeds. With this type of deed, the grantor is giving the grantee a guarantee, or warranty, that the grantor does have legal title to the property:
- A general warranty deed guarantees that there are no title problems with the property, even relating to those who owned the property before the grantor did.
- A limited warranty deed, or special warranty deed, only guarantees that there are no title problems that arose during the time the grantor has held title.
If title problems arise, the grantee can sue the grantor for violating the warranty of title. However, a warranty deed will indicate any known encumbrances on the property, such as a prior mortgage, easements, property taxes owed, and other things like subdivision deed restrictions.
Uses of Deeds
Whether you will use a warranty deed or a quitclaim deed depends not only on the relationship between the grantor and grantee, but also on the type of property transfer for which the deed is being used.
Quitclaim deeds. Quitclaim deeds are mostly used when there is no question as to the title of the grantor. This typically involves transfers between family members, or into or out of the grantor's trust or business. For example, a quitclaim deed would be used for a name change on a warranty deed, such as to add a new spouse or a child to the title, or to remove the name of a spouse following a divorce.
A quitclaim deed also can be used to correct mistakes. For example, if the original warranty deed to joint owners did not contain a survivorship provision, the warranty deed without survivorship can be converted to one with survivorship by using a quitclaim deed.
Warranty deeds. Warranty deeds are typically used where the grantor and grantee are in the position of buyer and seller, and are strangers. A warranty deed will almost always be required when the buyer is obtaining a mortgage and when title insurance is being issued.
A seller would ideally prefer to give a quitclaim deed, because it doesn't leave the seller liable for any title problems. And a limited warranty deed would limit the seller's liability to things that happened during the time the seller owned the property. On the other hand, a buyer would be best protected by insisting on a general warranty deed.
Deed of trust. Some states use what is called a deed of trust as a substitute for a mortgage. A warranty deed and deed of trust are similar, in that a deed of trust typically contains the same warranty of title as a warranty deed, but a deed of trust is much longer because it also contains the terms normally found in a mortgage. The buyer of property executes a deed of trust transferring legal title of the property to a third-party trustee (often a title company).
Then, when the loan is fully paid, the trustee deeds the property back to the buyer. The deed of trust process is more common in Alaska, Arizona, California, Colorado, the District of Columbia, Idaho, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia. In the other 31 states, it is more common to use a mortgage.
Content of a Warranty Deed
Any deed will contain the date, names of the grantor and grantee, a description of the property being transferred, and the signature of the grantor. There also may be signatures of witnesses, or a notary public acknowledgment.
What makes it a warranty deed is a statement that guarantees title, to the effect: "that the Grantor is lawfully seized in fee simple of said property; that said property is free and clear from all liens and encumbrances, except as herein set forth, and except for taxes due for the current and subsequent years, and except for any restrictions or easements of record; and that Grantor shall warrant and defend the same to said Grantee, and the Grantee's heirs and assigns, forever against all the lawful claims."
The exact requirements for the execution of a deed are contained in state law, and may vary slightly from state to state.
Recording a Deed
A deed transfer of title requires that the deed be submitted to a government agency for recording, most often the county clerk or register of deeds. The agency records the transaction in the county's official records, places a filing stamp on the deed, and returns the document to the grantee.
As the grantor—because you are providing a guarantee to the buyer when you transfer title using a warranty deed—you may want to engage an online services provider to help ensure that the warranty deed is created and executed correctly.