A Special Warranty Deed is a type of real estate deed that transfers ownership from a seller (grantor) to a buyer (grantee) with limited guarantees. Unlike a General Warranty Deed, which assures the buyer of a clear title throughout the property’s entire history, a Special Warranty Deed only guarantees that the seller has not caused any title defects during their period of ownership. It does not protect against claims or issues that may have existed before the seller acquired the property. Commonly used in commercial real estate or foreclosure sales, it provides some protection but requires buyers to conduct thorough due diligence.
What is a Special Warranty Deed?
The key feature of a Special Warranty Deed is that it offers a limited guarantee regarding the property’s title:
- Limited Guarantee of Title: The seller (grantor) only guarantees that:
- They have clear ownership of the property.
- The property was free of title defects or encumbrances (like liens or legal claims) during their period of ownership.
- No Protection for Prior Issues: This deed does not cover any potential title issues that might have existed before the seller took ownership. If a problem is found from a previous owner’s period, the buyer has no recourse against the seller under this type of deed.
How Does a Special Warranty Deed Differ from Other Deeds?
- General Warranty Deed: Provides the broadest protection, guaranteeing that the property has a clear title free of any defects or claims, both during the current owner’s tenure and going back to its origins.
- Quitclaim Deed: Provides no guarantees or warranties at all; the seller simply transfers whatever interest they have in the property (which may be none).
- Special Warranty Deed: Falls in between the two, offering limited protection. The seller only warrants against defects that occurred during their ownership.
Typical Uses of Special Warranty Deeds
- Commercial Real Estate Transactions: These deeds are commonly used in commercial property sales where buyers and sellers are sophisticated and conduct their own due diligence.
- Foreclosures and Bank-Owned Properties: Banks or financial institutions that acquire properties through foreclosure often use Special Warranty Deeds when reselling them. The bank only guarantees that no new issues arose while it held the property.
- Trustee or Estate Sales: Trustees or executors of estates may use Special Warranty Deeds when distributing property, as they may not have complete knowledge of the property’s history.
Benefits of Special Warranty Deeds
- Limited Liability for Sellers: Sellers are only responsible for issues that occurred while they owned the property, reducing their legal exposure.
- Some Level of Buyer Protection: Unlike a Quitclaim Deed, the Special Warranty Deed provides some assurances, although limited, regarding the property’s title.
- Lower Costs: Because the warranty is limited, these transactions may involve lower legal and insurance costs than those requiring a General Warranty Deed.
Risks for the Buyer
- Potential Title Issues: Since the seller only guarantees a clear title during their ownership, any pre-existing title issues are not covered. For instance, if a previous owner had a lien on the property that was never resolved, the buyer could be liable for it.
- Due Diligence is Crucial: Buyers should conduct a comprehensive title search to uncover any historical issues. Purchasing title insurance can provide additional protection against hidden claims.
Example Scenario
Imagine a company sells a piece of commercial property using a Special Warranty Deed. The seller guarantees that while they owned the property, no liens or legal claims were placed on it. However, a buyer discovers that there was an unresolved tax lien from a previous owner that was never cleared. Under a Special Warranty Deed, the buyer cannot hold the seller responsible for that lien since it originated before the seller’s ownership.
Steps Involved in a Special Warranty Deed Transaction
- Preparation of the Deed: The seller, often with the help of a real estate attorney, prepares the Special Warranty Deed, outlining the limited warranties provided.
- Title Search: The buyer (or their title company) conducts a thorough title search to identify any existing encumbrances or claims.
- Closing the Transaction: At closing, the deed is signed by the seller and transferred to the buyer, who officially takes ownership of the property.
- Recording the Deed: The signed deed is recorded with the local county recorder’s office to document the transfer of ownership publicly.
Conclusion
A Special Warranty Deed provides a balance between protection and flexibility, making it suitable for certain real estate transactions, especially when both parties understand the associated risks. Buyers should be aware of the limited guarantees offered and take steps to protect themselves through due diligence and title insurance.
