Warranty Deed vs. Deed of Trust: What’s the Difference?

Dead of trust states 

The following states use deeds of trust in lieu of mortgage loans: 

• Alaska
• California
• Colorado
• District of Columbia
• Georgia
• Hawaii
• Idaho
• Maine
• Massachusetts
• Minnesota
• Mississippi
• Missouri
• Nebraska
• Nevada
• New Hampshire
• New Mexico
• North Carolina
• Oregon
• Rhode Island
• Tennessee
• Texas
• Utah
• Virginia
• Washington
• West Virginia
• Wyoming

Other states, such as Alabama, Arizona, Arkansas, Illinois, Kentucky, Maryland, Michigan, Montana, and South Dakota allow mortgage lenders to choose between a deed of trust or a mortgage loan. In the remaining states, only a mortgage loan is allowed. 

Deed of trust example

If you were to buy a house in one of the deed-of-trust states today, you would likely apply for financing through a lender–let’s say ABC Bank. They pay for the house upfront, and you promise to pay them back (with interest) over the term of your loan. 

In the meantime, a title company—let’s say 123 Title—will hold the title. When you pay back the loan in full, 123 Title will transfer the title and full ownership to you. If, for whatever reason, you do not fulfill your obligation to pay back the loan, 123 Title can transfer the title to ABC Bank, which can then take ownership and re-sell the home.  

When to use a deed of trust vs. warranty deed

While these legal terms can be confusing because they both have the word “deed” in them, they have distinct purposes. Your real estate agent and/or attorney will be able to guide you on which one to use and when, but it is helpful to know the applications for each of these.

• Warranty deed: You may use a warranty deed when you’re transferring property ownership to another person or entity. It will assure the buyer that the property has a clear title and that no relatives, exes, HOAS, or other lienholders will come out of the woodwork to lay claim on the property later on. 
• Deed of trust: In many states, you may use a deed of trust in lieu of a mortgage when you’re securing a loan to purchase a property. It gives the lender a security interest in the property, which guarantees they get their money back through either full repayment or foreclosure.

Do I need a lawyer to prepare a warranty deed or a deed of trust? 

If you buy, sell, or transfer real estate, you may wish to consult with a licensed real estate attorney in your state. A lawyer is not always required, but they can advise you on the benefits and drawbacks of different types of property deeds, based on your specific situation. 

If you are confident in your understanding of the effects of various property deeds, you might consider using a reputable online legal service, like LegalZoom, to prepare your property deed.

​FAQs

Do you need both a warranty deed and a deed of trust in a real estate transaction? 

In a typical real estate transaction, you may need both a warranty deed and a deed of trust (or a mortgage, depending on the state). The warranty deed affirms that the seller fully owns the property and has the right to sell it without third parties laying claim to any portion of it. 

The deed of trust is the buyer’s binding promise to repay the lender as agreed. Exceptions to this would be if you are purchasing a property in cash (since there is no repayment) or transferring a property from your personal name into your trust (since you are fully aware of any liens).

Why is a deed of trust used instead of a mortgage?

A deed of trust is favorable to the lender because they can typically avoid a judicial foreclosure process should the need arise. They save time and money by avoiding court and quickly reselling the home. 

What is the difference between a quitclaim deed and a warranty deed?

A quitclaim deed transfers property ownership from one owner to another, but it offers no further protection. On the other hand, a general warranty deed guarantees ownership to the new owner, meaning there are no outstanding liens on the property. It’s in a buyer’s best interest to have a general warranty deed. However, a quitclaim deed is a quick, simple way to transfer a property into a trust. 

Do I need title insurance if I have a warranty deed?

A warranty deed is required, but title insurance adds an extra layer of protection in the event there are any issues with the title. If you have a warranty deed, and a third party tries to claim ownership, you can sue the seller. Lawsuits, however, cost time and money. Title insurance will do the investigating and legal battles for you AND cover any financial damages.