A special warranty deed (sometimes called a limited warranty deed, covenant deed, or grant deed in various states) transfers property ownership while limiting the seller’s promise about title defects. The seller (grantor) guarantees only that they did not create any title defects or encumbrances during the time they owned the property. The seller makes no warranty about anything that may have occurred before their ownership — those prior defects remain the buyer’s (grantee’s) risk unless otherwise insured or cleared.
Key takeaways
– Special warranty deeds limit the seller’s liability to problems that arose during the seller’s ownership period.
– General warranty deeds give broader protection, covering the entire chain of title (all prior owners).
– Special warranty deeds are common in commercial transactions, foreclosures, REO (real-estate-owned) sales, and short sales; general warranty deeds are more common in normal residential closings.
– Buyers mitigate the limited protection of a special warranty deed by obtaining a title search and title insurance.
– Laws and deed names vary by state; consult local counsel or a title company for jurisdiction-specific rules.
How special warranty deeds work
– Grantor’s limited covenant: The grantor promises they have done nothing to encumber the title while they owned the property (no new liens, no undisclosed conveyances, etc.).
– No assurances about prior history: If a title defect arose before the grantor took title (e.g., unpaid municipal fines, earlier undisclosed liens, forged deed in an earlier chain), the grantor is typically not liable.
– Title search + insurance: Because prior defects can exist, buyers commonly obtain a title search and purchase title insurance to protect against pre‑existing claims that a special warranty deed won’t cover.
Comparing special warranty deeds and general warranty deeds
– Coverage window:
• Special warranty deed: Protects only for the grantor’s period of ownership.
• General warranty deed: Protects against defects from any prior owner (covers the entire chain of title).
– Typical usage:
• Special: Commercial deals, foreclosures, bank-owned or government-owned sales (e.g., HUD, FNMA).
• General: Standard residential sales financed by lenders (most lenders prefer a general warranty deed).
– Risk to buyer:
• Special: Higher residual risk from earlier title problems.
• General: Lower risk because seller warrants against historical defects.
– Remedy:
• Special: Buyer’s recourse against grantor is limited to issues the grantor caused; title insurance is the main protection for earlier defects.
Other names
– Limited warranty deed
– Covenant deed
– Grant deed (in some states the term “grant deed” implies similar, limited covenants; check local law)
When and why special warranty deeds are used
– Foreclosures and bank sales: Sellers (banks, government agencies) typically do not want to accept liability for events before they acquired title through foreclosure or conveyance.
– Commercial real estate: Buyers and sellers often negotiate limited warranties as part of commercial deal allocation of risk.
– Government acquisitions/dispositions: Agencies often convey property with limited warranties to avoid broad historical liabilities.
Real-world example (illustrative)
A bank forecloses on a property and sells it to an investor using a special warranty deed. If a municipal code-enforcement lien from before the bank owned the property surfaces later, the bank is not liable under the special warranty. The buyer would need to use title insurance or pursue other remedies (if any) to clear that lien.
Important considerations for buyers and sellers
For buyers:
– Order a title search: Identify recorded liens, judgments, easements, and other encumbrances.
– Buy title insurance: An owner’s title insurance policy protects you against covered title defects and is the principal tool to manage the risk of pre-existing defects a special warranty deed does not cover.
– Review deed language: Ensure the deed’s covenants are what you negotiated; minor wording differences can materially affect protection.
– Consider negotiating seller indemnities: In some commercial deals you can negotiate limited indemnities for specific risks.
– Get a survey and inspect for unrecorded encroachments or boundary issues.
– If financing the purchase, your lender may require curative steps to grant clearable title (paying off liens, requiring title insurance).
For sellers (grantors):
– Be explicit about the warranty scope in the deed and purchase contract.
– If you are a lender, government agency, or REO seller, know that special warranty deeds limit exposure to only what you caused during your ownership.
– Provide supporting documents (payoff statements, affidavits) where possible to speed closing.
Practical step-by-step checklist (buyer-side)
1. Contract Stage:
• Review purchase contract for deed type required (general vs special).
• Decide whether to request a general warranty deed (residential) or accept a special warranty (common in foreclosures/REO).
2. Due Diligence:
• Order a title search and review exceptions/encumbrances.
• Order a property survey and municipal lien search if applicable.
3. Title Insurance:
• Purchase owner’s title insurance (and lender’s policy if financing). Confirm coverage limits and exceptions.
4. Review Deed Draft:
• Have your attorney or title company review wording. Ensure the deed is properly executed and notarized.
5. Closing:
• Confirm all liens the seller agreed to clear are satisfied.
• Record the deed immediately after closing in the county recorder’s office.
6. Post-Closing:
• Obtain recorded deed copy. Keep title insurance policy and closing documents secure. If a covered title claim arises, contact your title insurer promptly.
Practical step-by-step checklist (seller-side)
1. Determine deed to be used: Document the agreed warranty scope in the purchase agreement.
2. Clear title issues under your control: Pay off liens or disclose unresolved encumbrances.
3. Provide required affidavits and estoppel letters to confirm status of taxes, utilities, and mortgages.
4. Close and deliver deed: Execute the properly drafted deed, have it notarized, and ensure recording. Retain copies for records.
Red flags and when to consult professionals
– Multiple prior owners or complex estate transfers in the chain of title.
– Unrecorded agreements (leases, easements) or municipal code issues.
– Properties sold by banks, HUD, or FNMA — expect a special warranty deed and plan for title insurance.
– Discrepancies in deed language, inconsistent legal descriptions, or missing signatures.
If any of the above appear, consult a real estate attorney or a reputable title company.
Title insurance: your primary protection against pre-existing defects
– Title insurance insures against many title defects (depending on policy and exceptions) even if they predate the grantor’s ownership, and is often essential when accepting a special warranty deed.
– An owner’s policy protects your equity; a lender’s policy protects the lender’s interest. Purchase both if required.
Sample deed language (conceptual)
– Special warranty clause (simplified): “Grantor warrants that grantor has done nothing to encumber title during the period of grantor’s ownership and will defend against claims arising from acts of the grantor during that period.”
(Actual language varies by jurisdiction; have an attorney draft or review.)
State law and terminology matter
– Deed types and the legal effect of particular phrases vary by state. Some states use different names for similar documents; some covenants are implied by statute. Always verify local rules and typical market practice.
The bottom line
A special warranty deed transfers title while limiting the seller’s warranty to defects they caused during their ownership. It is common in commercial sales and foreclosures. Because it does not protect against pre-existing title defects, buyers should perform a thorough title search and obtain owner’s title insurance. For residential buyers or lender-financed purchases, a general warranty deed is usually preferred because it covers the entire chain of title.
Sources and further reading
– Investopedia, “Special Warranty Deed.”
– State of Mississippi Judiciary, Administrative Office of Courts, Henry Harvey v. Federal National Mortgage Association (example case referencing special warranty deed).
Legal disclaimer: This article is explanatory and educational only; it does not constitute legal advice. For advice tailored to your situation or state-specific rules, consult a licensed real estate attorney or title professional.