In Part 1 of this two part article we clarified the difference between deed and title. As a result, you should know that a deed is a written contract used to legally transfer title. For the purpose of simplicity and relevance, we will assume the real property being transferred by deed is a house being sold by a homeowner (seller) to a buyer. Part 2 of this article will focus on the four most common types of deeds used to transfer ownership when you sell a house.
Most Common Types of Deeds
The four most common types of deeds used to transfer ownership when you sell a house are general warranty deeds, special warranty deeds, bargain and sale deeds, and quitclaim deeds. There are other types of deeds use to transfer title for special purposes but are not the focus of this article. We will explain the four most common types individually.
General Warranty Deed: A general warranty deed provides the buyer of the house with the most possible protection against past and future claims on title. The seller of the house is essentially guaranteeing there are no limitations, encumbrances (i.e. liens, deed restrictions) on the title that are not clearly stated in the deed. The seller is also guaranteeing the absence of any title defects that occurred prior to and during the seller’s ownership of the house. These guarantees are being made forever by the seller. If defects are found later and were proven to have occurred prior to or during the seller’s ownership, the seller would be responsible for the necessary actions to clear/perfect the title of the buyer. The seller also is responsible for defending the buyer against third part claims on the title.
Special Warranty Deed: A special warranty deed carries a limited amount of protection against title defects. The seller is only warranting the title against defects occurring during his/her ownership. The seller is not guaranteeing that no encumbrances or title defects occurred prior to the seller’s ownership. Typically fiduciaries (i.e. executors of wills, trustees, etc) use a special warranty deed to transfer title. Sellers who are executors or trustees are usually in no position to guarantee the title on behalf of the preceding owner. As a result, they can only guarantee nothing has been done during their ownership to cloud or cause a defect in the title of the property.
Bargain and Sale Deed: General warranty and special warranty deeds both offer guarantees against encumbrances and defects in title when you sell a house. A bargain and sale deed offers no such warranty against encumbrances or defects in title. The seller is declaring they have an interest in the property. The bargain and sale deed conveys the seller’s interest to the buyer with no guarantee to warrant or defend the title against future claims that may arise as a result of title defects. The bargain and sale deed is most often the deed that is transferred from a foreclosure or tax sale—hence, the name. Since the seller, usually a bank or tax authority, did not occupy the property, it would not necessarily know of any encumbrances that may have been attached to the property by the previous owner. As a result, the seller does not want to guarantee against any encumbrances.
Quitclaim Deed: A quitclaim deed releases a seller’s interest in a property, if any, to a buyer with no warranties at all. Often the seller of a quitclaim deed openly admits to not knowing the condition of title or whether they hold title at all. The seller does not state in the deed that he/she has any title or interest to the property and essentially quits whatever interest he/she may have. If it is later found that the seller has no real claims to the property, the buyer receives nothing even though the buyer may have paid the seller money for the property. As a result, a quitclaim deed offers the least title protection to a buyer. An instance of use of a quitclaim deed can occur when a seller has inherited a property. For example, the seller inherits a property and wants to sell it quickly for cash. He/She doesn’t want to guarantee something that cannot be known with certainty. Thus, to limit liability, he/she sells only the interest in the property—whatever it is.
Given the potential issues inherent in property ownership, it is highly recommended that buyers seek to obtain appropriate owner’s title insurance in accordance with the applicable risks.
Conclusion
Most states share the same criteria for a deed to be considered valid and enforceable. Nevertheless, it is important that you learn about the unique criteria, rules, and regulations in your state when you are ready to sell a house or buy a house. Given the legalities and complexity involved in selling or buying a house, it is recommended to have a highly competent real estate agent, real estate attorney, and title company on your team.
Disclosure Notice: The author is a licensed Realtor in the State of Texas under the brokerage of Above and Beyond Realty, LLC.
