Types of deeds explained
Deeds are legal documents that transfer the rights of real estate property (such as a house) from one person to another. The deed must be signed by both parties, the grantor (seller) and the grantee (buyer), for it to be valid.
If you’re getting a mortgage, your lender will require a confirmation from your lawyer that the title is clear, which means there are no liens or claims against the property, and the seller (grantor) has the legal right to transfer ownership of the home to you, the buyer.
Much of this work happens in the background, but as a home buyer, you must be aware of the types of deeds before signing one.
But what type of deed should a home buyer use when buying a home?
Since there is more than one way to buy a property, there is more than one type of deed. You’ll need to understand the different deed types so you can ensure you’re signing the right one in your next real estate purchase.
Here are the four most common types of deeds in real estate.
- General Warranty Deed
- Specialty Warranty Deed
- Quitclaim Deed
- Bargain and sale deed
General warranty deed
When you buy a home, a general warranty deed gives you the most protection; the seller guarantees there are no title issues, not just during the period the current owner has owned the property, but for the entire history of the property.
Thus, a general warranty deed provides the highest level of protection to a buyer.
If, after acquiring a property with a general warranty deed, issues with the title arise, the buyer can sue the grantor (seller) for damages at any point in the future. With a general warranty deed, you’re guaranteed for life.
Special warranty deed
Don’t get fooled by the word “special.” A special warranty deed is not as good as a general warranty deed because it does not cover the property’s entire history.
With a special warranty deed, the grantor (seller) only guarantees claims against the title that occur during their ownership period.
A grantor who provides a special warranty deed makes the following two guarantees:
That the seller actually owns the property.
There are no title issues during covering the time the grantor (seller) has owned the property.
When most homeowners purchase a home, they receive a special warranty deed.
Think about it. If you were the seller, would you guarantee encumbrances from before you owned the property?
Can you buy a home with a special warranty deed?
Some sellers are not comfortable providing a general warranty deed and could only offer a special warranty deed. However, your lawyer will also perform a 30-40 year title chain search.
If outstanding claims have been filed against the property within the last 30-40 years, it’s going to show up in the search. This means, if anything shows up, you’ll ask the seller to clear the encumbrance before you can go ahead with the purchase.
Quitclaim deeds in real estate do exactly what it sounds like, when a person signs a quitclaim deed, he or she is saying that whatever interest they have in a property, they are giving up.
There is usually no monetary exchange; it’s a simple name transfer, but there is no promise or warranty at all. It only transfers their interest in the property from one name to another without making assurances about the quality of the title.
One common reason to use a quitclaim deed is during a divorce or if a family member wants to remove his or her name from the title to benefit another person.
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Bargain and sale deed
A bargain and sale deed transfers title from one name to another, but it does not protect the home buyer if there are issues with the title. I would avoid buying any property that only conveys a barge and sale deed because you don’t even get a guarantee that the transferor owns the property.
The most common type of real estate transactions where you’d see a bargain and sale deed being used is when buying municipal tax sales or in foreclosed homes.
Thus, with a bargain and sale deed, the current owner is typically a municipality claiming back taxes or a lender that has foreclosed a home. In this case, the deed shows the grantor (seller) has the right to transfer the title, but it makes no guarantees about other encumbrances against the property.
Difference between warranty deeds and quitclaim deeds
Some people wonder, if they are all deeds, what’s the difference? With a quitclaim deed, you aren’t making any promises about the quality of the title or whether anyone else has a claim on the property.
With a general warranty deed, when you sign that, you’re saying that there are no claims on the property and there are no outstanding liens. And, for specialty warranty deeds, you’re saying that during the time you owned the property, no claims on the title have been added.
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What is the difference between deed and title
Deed and title go hand-in-hand, but they are different. While the deed is a document that transfers ownership from one name to another, the title is more of a concept that describes ownership of a property.
When you say you have title to a property, you’re saying you have the legal rights to it, and you can prove it with the deed.
It’s similar when you buy something at a store. After you pay for the item, you get a receipt; that’s the deed, a written document that transfers ownership, but the title represents the concept that you’re now the legal owner.
If the land transfer office gets hacked and all the data is wiped out, how do you prove you are the rightful owner? You do that with the deed. The deed proves that you have title to the property.
Which deed type is best for home buyers?
When buying a home, you must hire a lawyer so that your lawyer can conduct a title search and make sure the property is free of previous claims, liens, and encumbrances.
Don’t skip that step and get caught up in the excitement of homeownership. Before signing the deed, make sure that you understand the type of deed you’re signing and the warranties you’re getting.
The more warranty you get from the grantor (seller), the better, but you can also consider buying title insurance for extra protection.
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