What is a warranty deed and how does it work?

A warranty deed is a type of deed used in real estate transactions to guarantee to the buyer that there is a clear title to the property. They’re used to transfer ownership of a property, and often a mortgage lender will require one to finance the home. Learn more about warranty deeds and how they work.

What is a warranty deed? 
 

When purchasing a home, buyers want to know that no one else has a claim to it, which could cause big problems down the road. Warranty deeds are legal documents that protect the buyer, assuring them that there aren’t problems with the title that could interfere with their true ownership of the home.

“Think of it like a title or deed for your new home,” said Jim Gray, a real estate professional and performance coach at Agent Advice. “The warranties within the deed offer assurances that no one else has a right to the property you’re purchasing.

“This protects you from the nightmare scenario of buying a home only to have someone else knock on your door saying they are the actual owner,” he said.

How a warranty deed is used

A warranty deed is a legal document that warrants, or states, that the seller owns the property and has the right to sell it. It’s a contractual agreement assuring the buyer there are no defects with the title, such as an undisclosed lien. It also offers legal protections for the buyer if something does come up and it turns out there’s not a clear title. 

Often, mortgage lenders will require a warranty deed before they agree to finance the purchase. Warranty deeds are recorded with the county as part of closing when the ownership of the home is transferred from the seller to the buyer. They’re also one of the many first-time homebuyer considerations you should be aware of when buying a home.

Legal components of a warranty deed

“The great part about a warranty deed is that it legally obligates the seller to resolve any title problems that surface, even after closing,” said Eric Bramlett, REALTOR® and owner at Bramlett Residential Real Estate. 

The warranty deed has several components that make it legally binding. These typically include the name and identification of both buyer and seller, a detailed description of the property, a clause that states the seller does intend to sell, and covenants, or promises, that guarantee the buyer won’t face anyone else’s legal claims to the property.

Warranty deeds are typically notarized as well, meaning that the seller (and sometimes the buyer, depending on the state) must sign the document in front of a notary public or other legal witness.

Why is a warranty deed important?

Warranty deeds play a significant role in real estate transactions for several reasons:

Ensuring clear title in property transactions

For homebuyers, having a warranty deed on the property you’re purchasing is valuable, because it provides peace of mind that you have a clear title. It can also help increase the property’s resale value because it provides a record for future buyers that there are no defects on the title. 

Safeguarding against claims

Warranty deeds are important in real estate because they safeguard against third-party claims on the property, such as liens. Some liens can have a decades-long statute of limitations, depending on the type of lien and your state, which means that a claim could arise on the title even if the lien was placed 20 years ago.

If a third party steps forward after the sale with a claim on the title, a buyer with a warranty deed can go to the seller for legal recourse.

What are the different types of deeds?

There are several basic types of warranty deeds:

• General warranty deed
• Special warranty deed
• Statutory warranty deed

General vs. special vs. statutory deeds

The types of warranty deeds differ mainly according to the covenants they offer. A general warranty deed provides all the covenants of a warranty deed:

• The seller owns the property
• They have the right to convey or sell it
• There are no liens or encumbrances on the title
• The title will hold up against any claims on it

“These covenants go back for as long as the property has existed” when you have a general warranty deed, said Justin Meyer, an attorney and partner at Rosenthal Meyer, PLLC. They also typically require the seller to reimburse the buyer for any issues that arise.

A special warranty has the same covenants, except only regarding the seller’s ownership — it doesn’t hold them liable for issues that arose before they owned the property.

A statutory warranty deed, on the other hand, varies by state. Statutory warranty deeds offer guarantees only according to the statutes of that particular state. They don’t offer protection for situations that are not spelled out in state law.

How are buyers and sellers protected?

With a warranty deed, the seller — or grantor — is obligated to guarantee they have ownership of the property. 

“When I represent a buyer, I want the sales contract to state that my client will receive a warranty deed,” Meyer said. “It is worth killing a deal over. These deeds provide protection and, it's worth noting, most title insurance underwriters require them.”

For sellers, a special warranty is better protection, because it clears them of responsibility for claims arising from before they were owners.

Mortgage lenders can also benefit from a warranty deed for many different types of home loans, as it helps mitigate the risk they take on when loaning money for the purchase and ensures a more marketable home if they need to foreclose on the home later.

When a warranty deed may help

There are several instances where a warranty deed comes into play.

For example, if a lender steps forward and claims there is an unsatisfied mortgage on the home, the buyer can hold the seller accountable and request that they resolve the problem. The same would hold true if a third party, such as a financial institution or government entity, reveals one or more liens on the property, such as a real estate or property tax lien, unpaid child support lien, or IRS tax lien. 

The warranty deed will be executed and recorded as part of the transfer of ownership, and any related fees must be paid at closing. Understanding closing costs will help buyers and sellers know what to expect in terms of the warranty deed and other costs.

What to expect during the warranty deed process

There are several steps involved in the warranty deed process that ensure the transfer of ownership is complete, legal, and properly documented:

• Create the deed: It helps to get legal advice when creating the warranty deed so you can make sure all components are correct and the document contains the proper language for your situation. You can get help from a lawyer or title company in creating the deed.at to expect during the warranty deed process
• Execute the deed: The seller, or grantor, will need to sign and notarize the deed; the notarization makes the contract binding. The buyer may or may not need to sign depending on the state.
• Record the deed: The last step is to record the deed with the county where the property is located. This step provides notice that ownership has been transferred and the seller no longer owns the property.

Grantor, grantee, and habendum clause

Knowing a few key legal terms is an important part of understanding what a mortgage is and what’s involved. While we use “seller” and “buyer” as a shorthand way of describing the parties involved in this article, the warranty deed will use more specific terms. For instance, the grantor is the current owner of the property, while the grantee is the person or entity who will become the new owner. 

Another piece of legal terminology to understand is the habendum clause. The habendum clause spells out the rights of the grantee, and is also known as the “to have and to hold” clause. It specifies what rights the grantee will have when the contract is executed — typically the right to have, hold, use, enjoy, transform, gift, or sell it as they wish.

How do warranty deeds compare with other property deeds?

In addition to warranty deeds, there are also other kinds of property deeds you may encounter or find suitable.

When to use different types of deeds

Different types of deeds in real estate offer slightly different covenants, or guarantees, but each one is designed to be a legal document when transferring ownership. Deeds can be official or private, meaning they’re a result of court action or they’re an agreement between two private parties. Not every deed will be appropriate for every situation. 

Using title insurance with a warranty deed

Even when the property has a warranty deed, title insurance is still an important component. 

Additional protection

Title insurance protects against losses while you own the property and covers claims against you after you sell to someone else. Similarly, the grantee that acquires title benefits from warranties in the deed forever. 

Nicole Betters, attorney, founder, and principal at Betters Law Firm PLLC, points out that the grantee who acquires the title also benefits from the warranties in the deed forever.

“Let’s say that Jane buys property from John, and John conveys title through a general warranty deed,” she said. “A creditor comes out of the woodwork and forecloses on the property based on a claim that wasn’t discovered by Jane before the transfer. Jane can sue John based on the deed warranties.”

Betters added: “But what if John has no assets? If Jane got title insurance, that risk would shift to the title insurer.” Title insurance helps layer the protection.

Risk mitigation

Understanding title insurance requires knowing the difference between a title search and title insurance. Both are used to mitigate risk in real estate transactions, but they accomplish different things.

A title search is the process of researching the history of the property to uncover defects or discrepancies in the title. If none are found, the title is presumed to be clean.

Title insurance, on the other hand, protects you against problems that weren’t discovered during the title search, such as liens or missing heirs.

Warranty deed FAQ

What is the purpose of a warranty deed?

A warranty deed’s main purpose is to protect the buyer from surprises involving undisclosed or unforeseen claims on the property. It provides peace of mind that you will own the property free and clear.

Are there any disadvantages to using a warranty deed?

Warranty deeds offer significant protection for the buyer, but sellers may find a few disadvantages. When they sign a warranty deed, sellers promise there are no title issues, but they won’t necessarily be protected if something arises.

Is a warranty deed synonymous with property ownership?

No, a warranty deed is not the same as property ownership, but it is an important document during the process. The warranty deed offers legal protection to the buyer during and after the transfer of ownership, while the title is the document that proves that ownership.

What should a buyer consider before accepting a warranty deed?

To ensure that the warranty deed protects them as expected, buyers should perform their due diligence on the kind of deed and its protections, as well as the property. The best way to ensure your rights are protected is to hire an attorney who is familiar with property laws in your state.