When to use a limited warranty deed

A limited warranty deed is a legal document that transfers ownership of real property from one person or organization, known as the grantor, to another, the grantee. This kind of deed guarantees that there are no title defects—claims against the title by a creditor or anyone else—that were put in place during the time period the grantor owned the property. The deed does not offer any guarantees about the condition of the title from the time period before the grantor took ownership.

How a limited warranty deed is different from other deeds

The important characteristic of a limited warranty deed is that it states there were no claims made against the title during the time period when the grantor owned the property. In contrast, a quitclaim deed conveys only what the grantor owns and makes no promises that there are no other claims against the property, either during or before the grantor's ownership. And a general warranty deed offers complete protection, guaranteeing there are no claims at all against the title, either during or before the grantor's ownership.

When a limited warranty deed is used

Because this type of title makes no promises about the overall condition of the title and only guarantees that there are no claims placed against it during the grantor's ownership, it is not the ideal deed that a real estate purchaser wants to receive. Someone purchasing a home for their family at full market price wants some assurances that there are no liens or claims against the property.

The limited warranty deed is most commonly used when a bank forecloses on a property due to an unpaid mortgage and then sells the property at auction. The buyer gets an excellent deal on the home and the bank unloads the property quickly. The buyer (grantee) receives the property via a limited warranty deed. The bank only promises that, while it owned the property, no claims were placed against the title. No guarantees are made about what happened before the bank owned the property. The grantee can purchase title insurance to protect themselves so that, if any claims do arise, the insurance will deal with them.

Creating a limited warranty deed

Each state has its own forms for limited warranty deeds, so you can obtain your state's form through your state statutes and forms or on the state website, or you can use an online service provider to assist you. The limited warranty deed will include the following information:

• Name and address of the grantor
• Name and address of the grantee
• Legal description of the property (this could be a lot number or a description of property lines), which you can find on the previous deed
• Statement that the grantor intends to convey the property to the grantee
• Statement that the grantor is the legal owner of the property and has the legal right to transfer the property
• Guarantee that there are no outstanding claims placed against the property by any creditor instituted during the grantor's ownership, with a promise of compensation by the grantor if that turns out not to be true

Converting a limited warranty deed

You may wonder if you can ever convert a limited warranty deed to a general warranty deed. You cannot convert what the grantor gives you. However, if you receive a property via limited warranty deed and then choose to sell it, it's up to you as to what kind of guarantees you want to make to your buyer. If you want to promise that there are no claims at all on the title, you can do that, but you will be liable if you are wrong.

A limited warranty deed—which is useful in transferring foreclosed properties—provides the buyer with some guarantees about the title, but it does not offer the complete protection of a general warranty deed.