Special Warranty Deeds Offer Fewer Protections
Warranty deeds are the most common form of property deeds in real estate, as they carry the largest amount of protections for both buyer and seller. Such protections include proof that the seller has the full right to sell their property, that there are no undisclosed liens or judgments on the title (if there are, they’re called title defects), and that there are no previous owners, unknown heirs, or any other third parties (such as mortgage lenders) who wish to claim interest on the property in question.
If there are, the warranty deed gives the right to the buyer to be protected against damages resulting from these claims. Other agreements between buyer and seller can also be made upon creation of the deed as well.
Variation on the Theme
There is, however, a variation to a warranty deed. It’s called the special warranty deed, and it tends not to have quite as many protections for the buyer as a general warranty deed, so sellers may often use this type of deed to transfer title.
The special warranty deed, also known as a limited warranty deed, is most often used in the buying and selling of commercial real estate and with house flippers: those who purchase property, renovate it and sell it for a profit. Warranty deeds, however, are used most often in residential property sales.
But What Really Differs?
While warranty deeds protect buyers from title defects ranging over the entire time period that the title of a property and its respective land has been transferred from person to person—which can be a long time in the case of a house in an old neighborhood, for instance—special warranty deeds only protect the buyer from defects that occurred while the current seller was in possession of the property, and not so much from previous owners.
You can use a special warranty deed in residential transactions, but both the buyer and seller have to decide if such a deed is suitable for their current transaction.
Special Warranty Deeds & Title Insurance
If it’s decided that a special warranty deed be created instead of a general warranty deed, then it behooves the savvy buyer to look into title insurance, which covers a variety of losses should title defects be discovered. Companies who offer title insurance thoroughly investigate any possibility of title defects, and if the buyer is able to obtain title insurance, then they won’t have to worry so much about dealing with the potential financial issues they might face otherwise. This said, you can create a special warranty deed online so that expensive attorney fees can also be avoided.
Other Important Information
While both the warranty deed and the special warranty deed require the names and addresses of both the seller and buyer, the information requirements for the special warranty are slightly different. One such differing information request is if the buyer intends to live at the property, develop it for commercial purposes, or simply sell it right away to another buyer.
Since such special warranty deeds are often used for commercial purposes, the seller should also mention any other agreements between them and the buyer concerning things like gas or oil rights.
As with all other deeds, a special warranty deed has to be signed in front of a notary public in order for it to be legally binding.