Special Warranty Deed

A special warranty deed (also called a limited warranty deed, covenant deed, or grant deed in some states) transfers property with a limited guarantee: the seller (grantor) promises only that there were no title defects or encumbrances created or suffered during the seller’s period of ownership. It does not protect against defects that arose before the seller held the property.

Key takeaways

• Covers only title problems that occurred while the grantor owned the property.
• Common in commercial transactions, foreclosures, bank-owned properties, and some REO sales.
• Provides less protection than a general warranty deed, which covers the entire chain of title.
• Buyers typically purchase title insurance to guard against undiscovered prior claims.

How a special warranty deed works

• The grantor warrants they did not create or allow any title defects, liens, or encumbrances during their ownership.
• The grantee assumes responsibility for issues originating before the grantor’s ownership.
• Naming varies by jurisdiction (special warranty deed, limited warranty deed, covenant deed, grant deed).
• Lenders and many residential buyers prefer general warranty deeds; special warranty deeds are more common where sellers (like banks) don’t want liability for earlier owners’ actions.

Special vs. General Warranty Deed

Differences
* Scope of protection:
* Special warranty deed — liability limited to the grantor’s ownership period.
* General warranty deed — liability extends over the entire history of the property’s title.
* Typical use:
* Special warranty — commercial sales, foreclosures, bank-owned properties.
* General warranty — standard residential purchases, especially with mortgage financing.

Similarities
* Both transfer legal title from grantor to grantee.
* Both identify the grantor and grantee and include a legal description of the property.
* Both commonly include warranties that the grantor has authority to convey title and will take steps to defend the grantee’s title.

Common features of warranty deeds

• Names of grantor (seller) and grantee (buyer).
• Legal/property description and location.
• Statement of the grantor’s ownership and right to convey.
• Warranties about liens, encumbrances, and claims (extent depends on deed type).
• Covenant to defend the grantee’s title against lawful claims (scope varies).

Pros and cons

Pros
* Enables transfer of title when seller is unwilling or unable to guarantee older title history.
* Can be appropriate and customary for foreclosed or bank-owned properties.
* Title insurance can mitigate risks of undisclosed prior claims.

Cons
* Narrower protection compared with a general warranty deed.
* Buyer bears risk for preexisting defects unless title insurance is purchased.
* Less common for typical residential sales, which may complicate lender requirements.

Examples and typical scenarios

• Foreclosure or REO sales: Lenders and government agencies frequently convey properties with special warranty deeds because they don’t want liability for earlier owners’ conduct.
• Practical example: If a city placed code-enforcement fines (liens) on a property before the seller’s ownership, those liens remain binding on buyers who accept a special warranty deed unless the liens are cleared.

Title search and title insurance

• A title search examines public records to identify liens, claims, or other title issues. While extensive, searches can miss issues.
• Title insurance (owner’s and/or lender’s policy) protects buyers from financial loss due to covered title defects, including many that predate the seller’s ownership. Purchasing title insurance is strongly recommended when accepting a special warranty deed.

When to use which deed

• Use a general warranty deed when you want maximum protection covering the full chain of title—typical for residential purchases with lender involvement.
• Consider a special warranty deed when buying bank-owned, foreclosed, or certain commercial properties where the seller will not assume liability for prior owners’ actions—but always pair it with a thorough title search and title insurance.

Bottom line

A special warranty deed limits the seller’s liability to title issues arising during their ownership. It’s commonly used in foreclosures, REO sales, and some commercial transactions. Because it offers narrower protection than a general warranty deed, buyers should perform a title search and obtain title insurance to reduce the risk of undisclosed prior claims.