Also known as a grant deed, a warranty deed is a legal document where the seller, or grantor, guarantees to the buyer, or grantee, that the real property being purchased is free from any mortgages, liens, or other encumbrances. If it is a general warranty deed, the guarantee extends back to the property’s origin. In contrast, if it is a specific warranty deed, the seller guarantees that there are no mortgages, liens, or other encumbrances while he or she has owned the property.
A warranty deed thus provides a method of transferring ownership or title in real estate that offers protection to the buyer. This is the case because the seller warrants, or guarantees, that he or she legally owns the property. An individual purchasing property or a bank lending money for the seller to purchase the property typically does not want to discover that the property has tax or mechanical liens or outstanding mortgages after the transaction is complete. If a seller provides a warranty deed and then the buyer later discovers an unpaid lien or other financial encumbrance, the buyer can seek legal action against the seller. Because sellers could die, have limited financial resources, or declare bankruptcy, real estate transactions involving warranty deeds often are accompanied by title searches and title insurance.
Typically, a title search or abstract of title is completed by a title company where researchers examine public documents — usually county documents of real property. There are three significant areas that are examined. First, the exact location and legal ownership is established; second, the property is reviewed for any outstanding mortgages, liens, or judgments that would prevent the buyer from obtaining a clear title. Titles are generally listed after the research is completed as good, marketable, doubtful, or bad. Third, the title search provides details on easements or other restrictions on the property.
Along with having a warranty deed, homebuyers usually purchase title insurance to assure a clear title. If lenders are providing mortgage funds, the lenders will require this insurance; the fee is paid only once, generally at closing on a property, for title insurance. Title insurance is available for owners, buyers, and lenders. Owners are assured that the promise made in the warranty deed on clear title has been researched, while lenders are assured that there are not judgments, liens, or other encumbrances on the property. Some extended title policies also covers other areas, such as building permit violations or covenant restrictions.