Good to know: Special warranty deeds
Special warranty deeds are cropping up more and more in the current real estate market. In Texas, a special warranty deed gives less protection to a home purchaser than a general warranty deed, but more protection than a quitclaim deed. Each of these types of deeds mean something very different for the buyer.
A “general warranty deed” is the typical deed used in Texas in a real estate transaction. This deed gives the most protection to the purchaser. Why? Because when a seller makes a general warranty, the seller covenants with the buyer that not only has the seller not personally done anything to adversely affect the title being conveyed, but neither has anyone else who has ever owned the property. Therefore, if there is a defect in title, the purchaser has a cause of action against the seller, and a purchaser who has conveyed defective title under a general warranty deed will be liable to the buyer under this type of deed.
A “special warranty deed” is being used more frequently in the current real estate market where homes are being foreclosed on by banks and bought up by investors who “turn and burn” properties. This type of deed affords the buyer less remedies against the seller, because the seller is only warranting that the seller has not personally done anything to adversely affect the title being conveyed. This leaves the buyer with essentially no remedy against the seller in the case of a defect in title (unless, of course, the seller did something that caused a defect in title). The warranty limits claims to those claimed by the the seller (the current grantor) against previous grantors, and does not give the buyer a right to claims against the seller, as with a general warranty deed. This could lead to insurmountable hurdles in order to cure defects in title, since the person selling the property may or may not (depending on the type of title they hold) have a claim against prior owners for defects in title, and leaves the current buyer with few or no claims against the current seller.
A “quitclaim deed” affords very little protection to the purchaser. It is only a transfer of whatever interest the grantor (seller) has. Therefore, if the seller holds defective title, the buyer now holds defective title and has no claim against the seller. The buyer would then need to go back in time to the last party that sold the property under a general warranty deed in order to obtain relief for defective title. This affords essentially no protection to the buyer.
In the current real estate market, special warranty deeds are appearing quite a bit. If you are considering purchasing a home and the seller attempts to give you a special warranty deed, think twice. If you are prepared to move forward on a real estate purchase that affords you no remedy against the current seller, at least be sure to include that consideration in your negotiations with the seller. Most importantly, make sure that any contract you sign is reviewed by a competent attorney to make sure that your rights are protected. For most people, the purchase of a home is the largest investment they will ever make, and it is best to make sure it is done right.
*Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
