What is a Warranty Deed?

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Definition:

A warranty deed is a document provided to a homebuyer that states they own the property outright without any liens or mortgages against it.

🤔 Understanding warranty deeds

Most homes are mortgaged or bought with a loan. That means that until the loan is paid off, the home is still owned by the lender, not the person living in the house. So, when you buy a house, how do you know that the seller actually owns the property and has the right to sell it? That’s where a warranty deed comes in. A warranty deed transfers ownership to the buyer and promises that the seller of a piece of real estate actually owns it — That means they don’t have any outstanding liens, mortgages, or other encumbrances against it. A warranty deed ensures that you won’t run into any trouble with someone who claims they still own the house after you already “bought” and “own” the house.

Example

Let’s imagine a homeowner named Max is selling his house. When Max fills out the closing paperwork with the buyer, he provides a warranty deed that transfers the ownership rights to the buyer. It's proof that the new owner now owns the real property and has the right to sell it.

Takeaway

A warranty deed is kind of like an engagement ring . . .

When one person proposes to another, they offer a ring as a promise that they’re serious and not already married to someone else. Similarly, a warranty deed promises a homebuyer that the house is currently “unmarried” — There are no outstanding liens, mortgages, or other encumbrances against the house.

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What is a warranty deed?

A warranty deed is a type of deed — a document that transfers real estate from a seller to a buyer. There are several different types of deeds, but a warranty deed offers the highest level of protection against title defects (problems that affect the seller’s right or ability to sell a piece of real property.) But why would you need to have protection for something like that? In legal terms, “title” basically means ownership. So, if someone has the title to a property, that means they own it.

However, buying and owning a house usually isn’t as simple as plopping down some cash and walking away with the keys. In fact, most homes in the United States are purchased with a home loan and a mortgage.

Although most people think a mortgage is the same as a home loan, the two are separate. A mortgage is a legal contract that gives the financial lender, aka the mortgagee, the right to sell the house if the borrower, aka the mortgagor, doesn’t pay back their loan on time.

Why is this relevant? Well, the title for a mortgaged home doesn’t always lie with the seller or purchaser, and that can lead to title issues down the line — that’s what a warranty deed protects against. In some states, the mortgagee (lender) holds the title until the mortgagor pays off their debt. In others, the mortgagor holds the title, but the mortgagee holds a lien against the property, which gives them the right to sell the property if the mortgagor doesn’t pay back the loan on time.

In both cases, someone other than the person living in the house has a claim to the property, and that could mean the person occupying it doesn’t actually have the right to sell it.

If the home is listed on the market, that can spell trouble for the buyer — They could finance the home with their bank only to find out down the line that an entirely different lender still has a lien on the property.

A warranty deed attempts to nip these sorts of title issues in the bud. It provides a promise to the homebuyer that the seller does, in fact, hold the title — there are no liens, mortgages, or other encumbrances against the property, and that the seller has the right to sell it.

What’s more, it grants a warranty to the homebuyer, aka the grantee, that if any title issues do crop up, they can hold the seller, aka the grantor, accountable. That means the grantee is entitled to compensation for any financial damages that arise from title defects, just like a car buyer is entitled to compensation under the factory warranty if their new car is defective.

Because of this, having a warranty deed is generally preferable to simply running a title search on the property. Besides simply checking that the seller has a clear title, it gives the buyer a form of recourse if something does go awry down the line.

Title insurance also protects buyers from financial damages due to title defects, but it’s always best to have as many layers of protection as possible. Many mortgage lenders require a warranty deed for this reason.

How do warranty deeds work?

Warranty deeds are typically signed at the end of a home sale during the closing process — the part of the sale in which the buyer and seller meet, fill out the legal paperwork, and transfer ownership of the property.

A warranty deed typically contains the following information:

  • The date
  • The name of the grantor
  • The name of the grantee
  • A description of the property under consideration
  • The signature of the grantor

The specifics of a warranty deed vary based on state law. Some states require the signature of a notary public or witnesses, for example.

Once the deed is signed, two things happen:

  1. The grantee receives the title to the property.
  2. The grantee receives a guarantee that the title is clear of any liens or encumbrances.

A warranty deed commonly guarantees the following covenants (a carryover term from old English law):

  1. A promise that the grantor has the right to sell the property
  2. Covenant of further assurances: A promise that the grantor will fix any issues with the title that occur in the future
  3. Covenant of quiet enjoyment: A promise that the grantee will not be evicted from the property

If it turns out that there are, in fact, title defects (or any of these covenants are broken), the grantee has the right to legal recourse. In short: they can sue the grantor. Other types of deeds, like quitclaim deeds, do not hold the grantor liable for any title issues. As you might expect, buyers usually prefer warranty deeds, and sellers often prefer quitclaim deeds.

What is the difference between a warranty deed vs. a general warranty deed?

The term warranty deed is a generic term that can refer to two different types of deeds: limited warranty deeds and general warranty deeds. The only difference between these two deeds is the time period for which the grantor guarantees clear title.

In a limited warranty deed, aka a special warranty deed, the grantor guarantees that there are no title issues from the period of time that they owned the property.

In a general warranty deed, the grantor guarantees that there are no title issues both from the period of time that they owned the property and from any previous owners.

What is the difference between a warranty deed vs. deed?

A deed can refer to any legal document that transfers a piece of property from one party to another. A warranty deed is just one type of deed.

Another key difference is that a warranty deed comes with a guarantee — A warranty deed transfers property from one party to another and guarantees that there are no title defects.

What is the difference between a warranty deed vs. quitclaim deed?

Both warranty deeds and quitclaim deeds transfer ownership of a property, aka the title, from one party to another. However, the two differ as far as liability for title defects is concerned.

A warranty deed guarantees that the grantor of the deed had clear title to the property in question, and that clear title is now being passed to the grantee. If it turns out that this isn’t the case, the grantee has the right to sue the grantor.

In a quitclaim deed, the grantor does not offer any guarantees to a clear title. Instead, the grantor simply transfers the title “as is.” If the grantee finds any title defects down the line, they’re not entitled to any legal recourse. Basically, it’s not the grantor’s problem anymore.

What is the difference between a warranty deed vs. deed of trust?

A warranty deed is a legal document that transfers a piece of property from one party to another and guarantees that the grantee now has clear title to the property in question.

A deed of trust, on the other hand, is more similar to a mortgage contract. In fact, some states use deeds of trust instead of mortgage contracts.

In a mortgage contract, a homebuyer who’s taking out a home loan from a lender gives the lender rights to sell the house if the borrower doesn’t pay back their loan on time. In essence, the borrower is giving the lender title to their home as collateral for the loan. Once the loan is paid off, the title is transferred to the borrower.

In a deed of trust, the collateral rests with a third-party trustee. So, instead of the lender holding title to the home, a third-party trustee holds the title. If there’s a dispute between the borrower and the lender, the trustee can arbitrate. Theoretically, this puts both the borrower’s and the lender’s interests on an equal playing field and leads to unbiased conflict resolution.

Why would you use a warranty deed?

Warranty deeds provide some of the best protection against title defects to homebuyers — if there’s a title issue, the buyer retains the right to sue the seller. Although home sellers generally prefer to use quitclaim deeds, lenders typically require warranty deeds.

Since most homes are purchased through a mortgage, refusing to provide a warranty deed would greatly decrease a seller’s chance of finding a buyer.

How do I get a warranty deed?

You can get a warranty deed from a lawyer, a local realtor, or by looking around online for a template. If you’re a homebuyer, and you want the seller to provide you with a warranty deed, you’ll likely need to negotiate with the seller and their realtor.

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20200319-1122934-3377663

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