Warranty of Title

What is a Warranty of Title?

A warranty of title is a guarantee from the person transferring the property (grantor) that the grantor owns the property and that the property is clear of liens, mortgages, or other encumbrances that may affect ownership (other than those disclosed in the deed).

The guarantee provided by a warranty of title are made in the deed and, as discussed below, depend on the deed form. If the guarantee turns out to be false, the person receiving the property (grantee) can sue the grantor for breach of the warranty of title.

What Warranty of Title Do I Need?

In most cases, the risks insured by a warranty of title are unknown. The warranty of title determines who is responsible if an unknown title issue surfaces at a later time. A deed that contains a warranty of title places risk on the grantor. A risk with no warranty of title places risk on the grantee.

Because it is ultimately up to the parties to determine who will bear risk for unknown title problems, there are no firm rules. But there are a few common patterns involving deeds to real estate:

• Most deeds provide no warranty of title if the property is being transferred as a gift between family members or others that are in a close personal relationship. Because the grantor is not receiving anything of value for the deed, most parties feel that it is appropriate for the grantee to bear the risk of title issues. A quitclaim deed or deed without warranty is used to transfer property with no warranty of title.
• Deeds that take effect at death—including TOD deeds, lady bird deeds, and life estate deeds—are almost always transferred without a warranty of title.
• Most deeds used in sales to unrelated parties use a full (general) warranty of title or a limited (special) warranty of title. Since the grantor is being compensated for the deed, most parties feel like the grantor should bear some responsibility for ensuring that the grantee receives good title. A general warranty deed is used to transfer property with an unlimited warranty of title. A special warranty deed (also known as a grant deed, covenant deed, or limited warranty deed—is used to provide a warranty of title that is limited to the time that the grantor owned the property.

These guidelines may help determine what warranty of title you need for your deed.

What Risks do the Warranty of Title Protect Against?

The warranty of title protects against risks that would make the property less valuable to the grantee. Common risks include:

• Any liens that arose while the grantor or prior owners owned the property, including liens for unpaid property taxes or Federal income taxes;
• Any boundary line disputes or survey discrepancies associated with the property;
• Any undisclosed mortgages against the property;
• Any prior conveyances of the property to others;
• Any legal restrictions on the grantor’s ability to convey the property;
• Any unresolved probate or inheritance issues resulting from deceased property owners.

Property with any of these characteristics is said to have unclear title. Unclear title can require costly legal action to resolve. These built-in costs make the property less valuable and often unsellable. The warranty of title protects against these risks by guaranteeing that the grantee has clear title and giving the grantee the ability to sue the grantor if there is a title problem.

Relationship of Warranty of Title to Deed Type

When a deed is used to transfer real estate, the deed must identify whether the deed includes a warranty of title and, if so, the extent of the warranty. The three most common deed forms are quitclaim deeds, warranty deeds, and special warranty deeds. The difference between these types of deeds has to do with warranties of title.

Warranty of Title Provided by a Quitclaim Deed, No Warranty Deed, or Deed Without Warranty

A quitclaim deed—sometimes referred to as a quit claim deed or erroneously as a quick claim deed—makes no promises about the title to the property. By signing a quitclaim deed, the grantor transfers whatever interest the grantor has to the grantee. But the grantor does not guarantee that the grantee will receive clear title. If it turns out that the grantor did not have clear title—or even if the grantor had no interest in the property at all—the grantee has no legal recourse against the grantor.

In a few states—including Texas and North Carolina—title insurance companies disfavor quitclaim deeds and prefer a type of deed called a deed without warranty or no warranty deed. A deed without warranty serves the same purpose as a quitclaim deed. It transfers property from the grantor to the grantee without a warranty of title. But unlike a quitclaim deed, the deed without warranty includes particular language that is required in states that disfavor quitclaim deeds. This special language helps clarify that the deed is a transfer—and not just a release—of real estate.

Because quitclaim deeds or deeds without warranty provide no warranty of title, they are most often used outside of the commercial context. Common situations include:

• The deed is a gift of the property, and the grantor is not comfortable with a warranty;
• Removing one spouse from the property so that the other spouse can deal with the property without spousal involvement;
• Removing a spouse from property following a divorce;
• The grantor is not sure that he or she owns or has clear title to the property; or
• The purpose of the deed is to remove someone’s name or clarify that the person doesn’t have an interest in the property.

Warranty of Title Provided by a General Warranty Deed

A warranty deed form—also known as a general warranty deed—provides a full warranty of title and is the most favorable to the grantee. By signing a warranty deed, the grantor makes an absolute guarantee that the grantor owns the property, has the right to convey it, and will defend the title against anyone that asserts a claim against the property.

Warranty deeds are sometimes used when:

• The buyer is paying consideration for the property (i.e., the transfer of the property is not a gift) and wants assurance about the seller’s title to the property;
• The deed is transferring title to commercial (non-residential) property; or
• The buyer does not intend to purchase title insurance and wants the seller to be liable for any title issues.

Warranty deeds may also be used in other contexts, depending on state law and local custom.

Warranty of Title Provided by a Special Warranty Deed, Limited Warranty Deed, Grant Deed, or Covenant Deed

As discussed above a warranty deed provides a full warranty of title and a quitclaim deed (also known as a no warranty deed or deed without warranty) provides no warranty of title. There is a third form of deed that provides a middle ground. Depending on state law and local custom, this third type of deed may be called a special warranty deed, limited warranty deed, grant deed, or covenant deed. Each of these names refers to the same type of deed: A deed that provides a warranty of title that is limited to the time that the grantor owned the property. (For ease of reference, special warranty deed is used in this article, but the term should be read to include each of the other names for this type of deed.)

Special warranty deeds are similar to warranty deeds in that they provide the grantee with assurance that the grantor has clear title to the property. But the warranty provided by a special warranty deed is more limited than the warranty provided by a warranty deed. A special warranty deed only guarantees that the grantor has done nothing to cause a title defect while the grantor owned the property. The special warranty deed makes no guarantees about what may have happened before the grantor acquired the property.

A special warranty deed is a middle-ground alternative that is very popular in some states, including California. special warranty deeds are often used in the following contexts:

• The grantor is transferring property to or from a trust or business;
• The grantor is making an outright transfer to a non-family member;
• The deed adds or removes a co-owner; or
• The deed changes the form of co-ownership.

A grantor should not use a special warranty deed if he or she is unsure whether he or she has done anything that might cause a title defect. In that situation, a quitclaim deed could be a better choice.

Warranty of Title Provided by a Life Estate Deed, Lady Bird Deed, or Transfer-on-Death Deed

A life estate deed (including an enhanced life estate or ladybird deed) is a type of deed that divides ownership between future categories of owners. Whether or not a deed qualifies as a life estate deed or lady bird deed is a separate issue from the warranty of title used on the deed. For example, a life estate deed may be a warranty deed, special warranty deed, or quitclaim deed, depending on the warranty of title.

For most deeds, the parties can decide whether to include a warranty of title and the extent of that warranty. But this is not always the case. Transfer-on-death deeds (known in some states as TOD deeds, TODDs, or beneficiary deeds) include no warranty of title even if the deed says otherwise. Both the California transfer-on-death-deed statute and the Texas transfer-on-death deed statute provide that the person who inherits property by transfer-on-death deed receives no warranty of title, even if the deed’s language appears to grant a warranty of title.

Relationship of Title Insurance to Warranty of Title

Although the warranty of title is an integral part of modern real estate transfers, it plays less of a role than it did in the past. In recent years, title insurance has supplemented—and sometimes replaced—the protection provided by a warranty of title. Title insurance can be beneficial to both the grantor and the grantee.

• It protects the grantor by giving the grantee a different recourse if an unknown title issue arises.
• It protects the grantee by providing a solvent insurance company that the grantee can look to if there is a problem with title.

Because title insurance companies conduct extensive due diligence before issuing a policy, it also helps ensure that any problems are discovered before the transfer takes place.

Title insurance is most often used in the sale context, especially when financing is involved. Lenders invariably require a lender’s title policy as a condition of a mortgage. In the gift or family transfer context, title insurance is less common.