North Carolina Special Warranty Deed Form

What Is a North Carolina Special Warranty Deed Form?

A North Carolina special warranty deed is a legal document used to transfer real estate from the current owner (the grantor) to a new owner (the grantee) with a partial warranty of the property’s title. North Carolina special warranty deeds provide the new owner less protection than a general warranty deed but more protection than a quitclaim deed. A special warranty deed covers title problems or adverse claims that arose while the grantor owned the property. The warranty does not cover any title issues or claims that existed before the grantor acquired the property.¹

What Is Warranty of Title?

A warranty of title refers to the guarantees or assurances provided by a real estate seller (or other grantor) to a buyer (or other grantee). The warranty guarantees the new owner that he or she will receive valid ownership, free of undisclosed liens and other third-party claims on the property’s title. Some, but not all, North Carolina deeds provide a warranty of title.

A North Carolina special warranty deed includes a warranty of title that is limited to the period during which the grantor owned the property. The limited warranty (also called a special warranty) covers title problems that arose while the grantor owned the property, but the grantor is not responsible for any issues that existed before he or she took title.

Other Names for a North Carolina Special Warranty Deed Form

The term special warranty deed is used in many states across the United States, including North Carolina, for deeds that provide a limited warranty of title. While special warranty deed is the most common name, some states use alternate names for deeds with a limited warranty, including:

• Limited warranty deed (Ohio or Kansas);
• Grant deed (California); or
• Covenant deed (Michigan).

There can be minor differences in the details of the warranty from state to state, but the essential concept is consistent: the deed transfers real estate to the new owner with a partial warranty that covers some (but not all) potential problems with the property’s title.

How Do North Carolina Special Warranty Deed Forms Relate to Other Forms of Deeds?

In North Carolina, there are several types of deeds used for transferring real estate property, each offering a different level of protection and warranties to the grantee. Special warranty deeds provide limited protection—splitting the risk of title problems between the current owner and the new owner. North Carolina’s other main deed types—warranty deeds and quitclaim deeds—place all the risk on one party or the other.

• North Carolina warranty deed form. A North Carolina warranty deed, also known as a general warranty deed, provides the grantee with the highest level of protection against title problems. A warranty deed guarantees a valid, clear title, and the grantor promises to defend the grantee’s title against any third-party claims.² A warranty deed’s warranty covers the entire history of the property—not just the time during which the grantor owned it.
• North Carolina quitclaim deed form. A North Carolina quitclaim deed form offers the least protection to the new owner, as it does not contain any warranties or guarantees regarding the property’s title. The grantor only transfers whatever interest he or she may have in the property, without making any assurances about the validity of the title or the absence of encumbrances.³ Quitclaim deeds are often used when the grantor’s ownership interest is unclear, or when there is no consideration given for the transfers—such as transfers between family members or to clear up potential title issues.

A general warranty deed offers the most protection to the new owner—placing the most risk on the grantor. Conversely, a quitclaim deed offers the least protection to the new owner—placing the most risk on new owner. A special warranty deed’s limited warranty is a compromise between the two other deed forms—giving the new owner partial protection and sharing the risk between both parties.

North Carolina Title Insurance and Special Warranty Deeds

Title insurance protects a real estate purchaser and/or a mortgage lender against financial losses resulting from title problems that were not discovered during the title examination process.⁴ Title insurance is typically purchased during the closing process of a real estate transaction. If a title issue surfaces after the property has been transferred, the title insurance company compensates the insured party (either the new owner or the lender) for any losses or damages the title issue causes. The title insurance company may also take legal action to resolve the issue on behalf of the insured party.

There are two main types of title insurance policies: owner’s title insurance and lender’s title insurance. Owner’s title insurance protects the grantee’s financial interest in the property, while lender’s title insurance protects the lender’s financial interest in case of a title defect.

When a North Carolina special warranty deed is used in a real estate transaction, the grantor provides a limited warranty that guarantees the grantor did nothing to impair the title and covers third-party claims arising during the grantor’s ownership. Title insurance supplements the limited warranty by protecting against potential title issues at any point in the property’s chain of title. A title insurance policy also ensures a source of payment if a title issue arises.

North Carolina Special Warranty Deed Forms and Other North Carolina Deeds Used in Estate Planning

A North Carolina special warranty deed is named for the limited protection and guarantees it provides to the new owner. Estate-planning deeds are named for how they transfer property upon the grantor’s death and avoid probate.

• North Carolina life estate deed. In a life estate deed, a property owner transfers future property ownership to another person (the remainder beneficiary), and the owner retains a lifetime ownership interest (the life estate). A life estate deed lets the owner continue to live in and use the property for life and transfer the property directly to the beneficiary upon the owner’s death without going through probate. After creating the life estate deed, the owner can sell or mortgage the property only with the remainder beneficiary’s consent.
• North Carolina lady bird deed. Also known as an enhanced life estate deed or a life estate deed with powers, a North Carolina lady bird deed functions like a traditional life estate deed. The owner keeps a lifetime ownership interest and transfers the property to the remainder beneficiary at death without probate. An enhanced life estate deed also reserves the owner’s right to sell or mortgage the property during life without the remainder beneficiary’s consent.⁵

A North Carolina property owner can also avoid probate by creating a deed that transfers the property to a living trust for estate planning purposes.

Transfer-on-Death Deed in North Carolina

North Carolina has not enacted transfer-on-death deed legislation. Therefore, transfer-on-death deeds—or TOD deeds—cannot be used in North Carolina. In states that recognize TOD deeds, a transfer-on-death deed allows a real estate owner to designate a beneficiary who will receive the property upon the owner’s death. During the owner’s lifetime, he or she retains full ownership and control of the property. When the owner dies, the property transfers directly to the designated beneficiary without the need for probate.

Common Uses of North Carolina Special Warranty Deed Forms

A special warranty deed is commonly used in North Carolina real estate transactions that require a moderate level of protection for the grantee (buyer). Some common uses for a special warranty deed in North Carolina include:

• Sales of commercial properties. Special warranty deeds are often used in commercial property transactions, where the grantor is willing to provide limited guarantees regarding the title, and the buyer is willing to accept the risk of potential issues that predate the grantor’s ownership.
• Sales of bank-owned or foreclosed properties. Financial institutions often use special warranty deeds when selling foreclosed properties, as they are typically unable or unwilling to guarantee the title for the entire history of the property.
• Transfers within an LLC, corporation, or partnership. When transferring property between entities within an LLC, corporation, or partnership, a special warranty deed may be used to provide limited warranties that cover the time the transferring party held ownership.
• Transfers between unrelated parties with a known title history. In cases where the grantor and grantee are not closely related or familiar with each other, but the grantee is confident in the property’s title history, a special warranty deed may be used to offer a moderate level of protection.

How to Create a North Carolina Special Warranty Deed

As with any deed, a North Carolina special warranty deed should be customized to reflect the specific terms and conditions of the transaction. Reliance on fill-in-the-blank forms can lead to invalid documents and future title issues.

A special warranty deed must meet North Carolina deed requirements and include the information needed to describe the transfer. Required information includes the grantor’s and grantee’s names and addresses, a legal description of the property being transferred, and a granting clause stating that the grantor is transferring the real estate to the grantee.

A special warranty deed must also have language indicating that the deed provides a limited warranty of title. North Carolina does not have short-form statutory language for special warranty deeds, so the deed must expressly describe the warranty.

The grantor must sign the deed in the presence of a notary public. The notary public will verify the grantor’s identity and acknowledge that the grantor executed the deed voluntarily. After the deed has been signed and notarized, it should be recorded with the register of deeds in the county where the property is located. Recording the deed provides public notice of the transfer and helps protect the grantee’s rights in the property.

1. Spencer v. Jones, 84 S.E. 261 (N.C. 1915).
2. Smith v. Peoples Bank Trust Co., 119 S.E.2d 623 (N.C. 1961).
3. Hayes v. Richard, 97 S.E.2d 105 (N.C. 1957).
4. N.C.G.S. § 58-26-1.
5. Howell v. Alexander, 165 S.E.2d 256 (N.C. Ct. App. 1969).