Warranty Deed Meaning

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.

Key Takeaways

  • 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.

How Does Warranty Deed Work?

A warranty deed involves two parties, grantorGrantorA grantor refers to a person who has created a trust to manage his/her assets and legally transfer them to the beneficiary to avoid inheritance issues. For instance, a grantor could be a father who has created a trust to control and manage his real estate property, money, and investments and transfer them to his family upon his demise. Since it is a legal process, management, taxation, and transfer terms are specified in the agreement or a deed.read more and grantee. The seller is called the grantor, and the buyer is called the granteeGranteeA grantee is the legal definition of someone who receives something from someone else. Often, it’s a title or property, but it can also be a business arrangement or a scholarship.read more. 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 diligenceDue DiligenceDue diligence is a thorough examination of information and strict adherence to the applicable rules and regulations. It ensures asset protection as well as the avoidance of malpractices and conflicts.read more 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 encumbrancesEncumbrancesEncumbrance is the legal control over the legal owner’s property that can be claimed if the legal owner mortgaged the property, did not pay the statutory governmental dues against the property, did not repay the loan against the property, and did not pay an amount of purchase consideration to the previous owner.read more 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.

Purpose of Warranty Deed

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.

Warranty Deed vs Quitclaim Deed

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.

Warranty Deed vs Deed of Trust

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 debtDebtDebt is the practice of borrowing a tangible item, primarily money by an individual, business, or government, from another person, financial institution, or state.read more 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 trusteeTrusteeA trustee is an individual or institution with legal authority to manage the trust property and assets on behalf of the settlor to benefit the beneficiary. They have complete control over the trust assets until they get transferred to the beneficiary. The administration of assets goes as per the directions of the trust. read more 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 –

The warrant deed does not prove the ownership right of the new owner or buyer, or grantee. However, through the deed, the previous owner or grantor is assuring his sole ownership right in the property, and it is free from encumbrances like mortgages and tax lien.

Deed represents the legal document transferring the legal ownership of an asset to the buyer. Common types include grant deeds and quitclaim deeds. The purpose of a warranty document is to convey assurance or guarantee.

It gives the buyer an unlimited warranty of title. It provides 100% assurance that the present owner has legitimate title to the property. Also, the guarantee does not apply only to the time the present owner has possessed the property. It implies that the existing owner may be held legally liable for title concerns pertaining to the period before the current owner acquires the asset.

  • Tax DeedActuarial ScienceTenancy by the Entirety