Warranty Deed

A warranty deed refers to a legal document assuring that the seller is the property owner and has the free and clear right to transfer the ownership title to the buyer. It also promises that the property is free from any debts or claims.

It is one of the examples of different types of deeds associated with real estate transactions. When a property is sold, a warranty document specifies the legal guarantees on the good title and subsequent degree of protection to the buyer. The information contained in the warranty document includes the property description, details of the parties involved, relevant dates, and signatures.

• Warranty deeds represent the guarantee that the seller is the valid owner of the property and that the property is not attached to any debts or claims by third parties. 
• Seller (grantor) and buyer (grantee) are the two parties involved in the deed.
• It is used to mitigate future legal risks and smooth the grantee's process of obtaining mortgages.
• Quitclaim deeds differ from warranty documents, majorly because they don't offer any guarantees.
• Trust deeds involve the borrower, lender, and the trustee, unlike warranty documents.

A warranty deed involves two parties, grantor and grantee. The seller is called the grantor, and the buyer is called the grantee. The warranty document where the grantor states his free and clear ownership of the property serves the purpose of the grantee using it as a defense against encumbrances. In such scenarios, the grantor is liable to settle or deal with the encumbrances.

The grantor is responsible for performing due diligence before furnishing the warranty document. Then the deed is notarized and filed in the appropriate government office for official recording purposes. Recording the deed is an effective practice that helps attach the legal status to the deed. Furthermore, the templates or references for preparing the deed are available on the government entities' websites like SEC.

It is divided into two types: special and general warranty deeds. The amount of protection provided by the former is less than that offered by the latter. The primary distinction is that in the former, the seller is bound to clear any encumbrances or claims that correspond to the period in which the seller held the property only. In the latter, the seller is liable to resolve any encumbrances or claims of any period, even if the seller does not possess the property during the stipulated time.

For instance, the general warranty deed in Texas provides an unlimited guarantee of title, which is clear in all feasible ways. On the other hand, in a special warranty deed in Florida, the seller only promises that the property is free from claims during his ownership tenure.

The purposes of a warranty document include the following:

• To prove that a seller or grantor is the rightful owner of the property.
• To assure the property is free from outstanding liabilities or encumbrances.
• To mitigate future legal risk.
• To smooth the grantee's process of obtaining a mortgage or title insurance financing.

By offering a warranty or guarantee, a legal warranty document protects the buyer and assures them that they are buying property from the rightful owner and without any liabilities attached. In comparison, a quitclaim deed transfers the grantor's outright interest in the property to the grantee without stating any guarantee.

Having a quitclaim deed in possession offer no guarantees or legal protection, which means that it does not protect the buyer from claims or lawsuits filed by third parties. Since the grantor is free from responsibilities related to the property after transferring his interest in the property, the grantee cannot sue the grantor for any issues arising out of the property, unlike a warranty agreement. Hence, the grantee requires to investigate the property for any third-party claims, liens, or other matters before obtaining the grantor's stake in the property.

A deed of trust is also known as a trust deed and is an important document in real estate transactions. For example, it is used when the buyer takes out a loan to finance the purchase of a real estate property. In this setting, the deed of trust is an agreement between the borrower and the lender to have the property held in trust by an independent third party until the debt is paid off.  

The major difference between a deed of trust and a warranty document is that the former is signed between a lender and a borrower in property purchases. The latter involves a third party as trustee apart from the borrower and the lender. Its utility is similar to that of using mortgages and allows the trustee to recover the loan amount in case of default. Since most people use mortgages to buy property, the use of a deed of trust is not as common as it used to be. However, it is compulsory in some of the states in the US. Furthermore, real estate transactions do not simultaneously involve mortgages and the deed of trust.

This has been a guide to Warranty Deed and its Definition. Here we discuss how it works, its purpose, along the differences between Quit Claim Deed and Deed of Trust. You can learn more from the following articles -

• Tax Deed
• Actuarial Science
• Tenancy by the Entirety