A Special Warranty Deed is a legal document used in real estate transactions that provides a limited warranty to the buyer. Unlike a General Warranty Deed, a Special Warranty Deed only guarantees that the property title was clear of any issues or claims during the period the seller owned the property. It does not cover any defects or encumbrances that may have existed prior to the seller’s ownership.
Usage of Special Warranty Deeds
Typical Scenarios
Special Warranty Deeds are commonly used in:
- Commercial Real Estate Transactions: Where sellers do not wish to provide extensive guarantees.
- Bank-owned Properties: Typically after foreclosures.
- Transfers within Corporations or Legal Entities: Where the history of the property title is well-documented.
Legal Implications
This type of deed places more risk on the buyer, who may need to perform thorough due diligence or request title insurance to protect against any pre-existing title issues.
Comparison with General Warranty Deed
Key Differences
-
Warranty Scope: A General Warranty Deed provides an extensive warranty against any title defects during the property’s entire history, while a Special Warranty Deed limits this guarantee to the seller’s period of ownership.
-
Risk to Buyer: The buyer assumes greater risk under a Special Warranty Deed, as prior issues are not covered.
Examples
- General Warranty Deed: John sells a house to Mary, using a General Warranty Deed. If a previous owner had unresolved liens from before John’s ownership, Mary can hold John accountable.
- Special Warranty Deed: John sells a house to Mary, using a Special Warranty Deed. If the liens were from before John’s ownership, Mary cannot hold John accountable.
Historical Context
The concept and use of Special Warranty Deeds have evolved primarily from the need for different levels of legal protection based on specific transaction scenarios. Originally, they found extensive use in complex commercial transactions and have since become a standard in various other less-risk-averse property transfers.
Applicability
Special Considerations
-
Title Insurance: Buyers should consider purchasing title insurance when dealing with a Special Warranty Deed to safeguard against any undisclosed issues.
-
Due Diligence: Performing a thorough title search is critical to uncover any potential problems that might not be covered by the Special Warranty Deed.
Best Practices
- Understand the Limitations: Clearly comprehend the limitations of the warranty provided.
- Consult Legal Experts: Engage with real estate attorneys for any legal implications.
- Consider Alternatives: Evaluate if a General Warranty Deed or another type of deed might be more appropriate.
Related Terms
- Quitclaim Deed: A type of deed with no warranties, transferring only the interest the grantor has in the property.
- Bargain and Sale Deed: Similar to a Special Warranty Deed, but without any explicit warranties.
FAQs
Can a Special Warranty Deed be used for residential properties?
What happens if a title issue arises from the seller's period of ownership?
Is it mandatory to get title insurance with a Special Warranty Deed?
References
- Title: Black’s Law Dictionary, Edition: 11th, Publisher: Thomson Reuters
- Author: William & Kristen Rosenberry, Book: The Real Estate Investor’s Handbook, Edition: 2nd
- Online Resource: American Bar Association (ABA) website on real estate law.
Summary
A Special Warranty Deed offers limited protection to the buyer, covering only the period during which the seller owned the property. It is essential in scenarios with potential historical title issues and higher-risk transactions. Understanding its limitations, engaging in thorough due diligence, and considering legal capture such as title insurance are crucial for safeguarding property investments.
