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When to Use a Special Warranty Deed

A special warranty deed is a legal document in which the seller of a piece of real estate guarantees that its title is free of any defects that may have arisen while he or she owned the property. This document has a limited scope compared to the warranty deed because it does not cover any title defects before the seller took ownership. Defects or encumbrances typically involve ownership claims by other parties, tax liens, judgments, and disputes over land boundaries.

Special warranty deeds are more common in real estate transactions involving commercial property. Although not a legal requirement, buyers and sellers are more inclined to use a warranty deed in residential real estate transactions. A special warranty deed is also appropriate when a property is being transferred into a trust or for people who flip houses for a living. This refers to the practice of purchasing a property, fixing it up, and then selling it for a profit.

Limited warranty deed is another name for special warranty deed. Both refer to the fact that the buyer is only protected from issues with the title during the period the seller owned the property. This type of transaction is common among bankers, real estate investors, developers, and builders.

How a Special Warranty Deed Differs from a Warranty Deed

A warranty deed offers greater protection for the buyer because it holds him or her harmless for prior mortgages, liens, judgments, and ownership claims over the entire history of the property. It offers the following specific promises:

  • The seller swears to protect the buyer against any claims against the property title in the future.
  • The seller vows that he or she currently owns the property and has the right to sell it.
  • The title is currently free of defects to the best of the seller’s knowledge.
  • The buyer has the right to enjoy the property without disturbance after the finalization of the sale.

Buyers and sellers should consider their needs carefully before deciding if a special warranty deed or a traditional warranty deed is in their best interest.

Other Types of Real Estate Deeds

The specialty warranty deed and the traditional warranty deed represent two of four types of deeds that buyers and sellers can opt to use in a real estate transaction. In some situations, a contract for deed or a quit claim could be the better option.

A contract for deed is a direct financial transaction between a buyer and a seller. Since the qualifications to receive a mortgage loan are quite stringent, not all potential buyers qualify for one. The applicant may have insufficient income or credit history or have poor credit history in the past. A contract for deed is an ideal option in this case. It allows the buyer and seller to determine their own payment terms. A common scenario is for the buyer to live on the property for a pre-determined amount of time while making payments to the seller. The seller can then decide at what point the buyer owns the property.

A quit claim deed is another option for when a property gets placed in trust. Families who want to transfer ownership of a property from one member to another typically use this type of deed as well. This is common when a parent wills a piece of property to an adult child or in divorce situations.

Information Needed to Prepare a Special Warranty Deed Online

Creating a warranty deed online saves both parties a lot of time. The seller, also known as the grantor, is the one to complete it. He or she needs to complete the following information when doing so:

  • The complete name or names of the grantor along with his or her address. Marital status needs to be checked as well since both spouses have equal rights and responsibilities in regards to selling the property.
  • The special warranty deed must indicate the amount of money changing hands in the transaction.
  • The names and addresses of the buyers, also known as the grantees.
  • A description of how the buyer intends to own the property. For example, will he or she live at the property, create a commercial development from it, or promptly sell it to another party?
  • The document must include a description of the property being sold. This includes the physical address, legal description, and recording information. The seller can locate a legal description from the real estate deed he or she signed when taking ownership of the property. A current property tax statement should indicate the recording number, which is also known as a parcel number. If the seller cannot locate this identifying information, he or she can obtain it from the county or city clerk’s office.
  • At the bottom of page one, the seller should indicate if the property is subject to any restrictions or easements. The seller also list the book and page location for the previous deed that transferred ownership of the property to him or her.
  • The special warranty deed should also indicate any additional agreements between buyer and seller, such as a percent interest in oil and gas or a life estate interest.

Once all this information is listed, the grantor needs to sign the document in the presence of a notary public. The next step is to file the notarized special warranty deed with the county official’s office where the property is located.

How to Make a Specialty Warranty Deed Legally Binding

It is the seller’s responsibility to ensure that he or she has paid all property tax and any special assessments against the property. These can be paid in the city or county clerk’s office if necessary. This provides a free and clear title to the buyer just as the document promises. It is also important to check city, county, and state regulations to see if any additional information must be included or if the transaction is subject to additional legal restrictions.