If you're in the process of buying a new home, you will inevitably be faced with mounds of paperwork: titles, deeds, loan papers, and much more. Most people would think a deed is a pretty straightforward piece of paper, right? However, there are actually a few different types of deeds. Homebuyers should get to know each type before signing one, as each type of deed protects against different situations. Contrary to the way they sound, special warranty deeds actually benefit the seller more than the buyer of the home. But first, let's take a look at the other common types of property deeds.
General Warranty Deeds
The General Warranty Deed is the most common type of deed a homebuyer will encounter. This deed makes four guarantees, or warranties, about the property. It serves as the seller's "promise" to the buyer that:
- The seller has the right to sell the property.
- If anyone else were to claim rights to the property, the seller agrees to defend the title against such persons.
- The seller owns all of the rights to the property. This is called "seized of the fee."
- There are no special considerations, or encumbrances, on the property that aren't already listed on the deed. For example, if a power company had rights to install a line on the property, or a neighbor has egress through a shared driveway, these encumbrances should be listed on the deed. Anything that affects the use or value of the property is considered an encumbrance.
A General Warranty Deed is the most well-rounded of the deed types. It protects the buyer from potentially damaging situations, like property liens or unexpected beneficiaries.
Non-Warranty Deeds
A Non-Warranty Deed, sometimes known as a Quit-Claim Deed, is the polar opposite of a General Warranty Deed. A Non-Warranty Deed makes no guarantee whatsoever. The seller is simply passing his or her rights onto the buyer, whatever those rights may be. The seller makes no "promise" that he or she has the rights to the property and does not have to disclose encumbrances, liens, or any other information to the buyer. Obviously, Non-Warranty deeds are not ideal, and not very reassuring.
Limited Warranty Deeds
Limited Warranty Deeds are also known as Special Warranty Deeds. This type of deed falls somewhere in between a General Warranty and a Non-Warranty Deed. In this deed, the seller is making two "promises" to the buyer, but there's a catch. The seller only warrants against his or her own acts. Basically, it protects the seller more than the buyer. The seller promises that:
- The seller did not alter or change the original title of the property. There is a difference here. While the General Warranty promises the seller owns both the property and the rights to sell it, the Special Warranty Deed only guarantees that the seller holds the original, unaltered title.
- If a person were to come forward claiming right to the property, the seller will defend those rights, but only if the claims are towards the seller, himself. Whereas the General Warranty protects the buyer and seller from claims by anyone, the Special Warranty only protects the seller when the claim is made on account of his or her previous acts.
As you can see, the Special Warranty Deed mostly benefits the seller. For example, let's imagine you purchased your home from the seller, who bought it from another previous owner. Two years pass, when suddenly you receive a notice that there are back taxes that hadn't been paid by the previous owner. Under the General Warranty Deed, the warranty against encumbrances should protect against this.
Since this encumbrance wasn't made apparent on the deed, the seller will owe the back taxes. However, if you had signed a Special Warranty Deed, you would end up owing someone else's property taxes. Remember, all the seller has to do is prove he had not personally done anything to encumber the property. Because the taxes are from a previous owner, and not the seller, the liability falls to you.
If you're buying a home, it's important to thoroughly understand the type of deed you will be signing. Make sure you know what is guaranteed by the seller offering you the property or that great deal you found could turn out to be a great deal of debt.
