Are you in the process of buying or selling a house for the first time? In that case, you’ve likely started to run into the term “deed.” We’ll expand on what the use of deeds are momentarily, but in short, they are legal documents that deal with transferring property ownership. Tackling legal documents can be challenging in itself, especially because you know that they’re the keys to your property rights and protection. On top of that, there are several different types of deeds, and it can be tricky knowing which one you’re supposed to use, and which one will protect you best.
Today, we’re here to talk about the differences between two common types of deeds: a grant deed vs. warranty deed. You’ll find out the different uses of both warranty deeds and grants deeds, and the key differences between each of them. By the end of this guide, you’ll be able to determine if you should use one of these two deeds, and if so, which one is right for you.
What Are Deeds Used For?
Before we seek our teeth into warranty and grant deeds, let’s take a step back and talk about deeds as a whole.
According to Investopedia, a deed is a “signed legal document that transfers ownership of an asset to a new owner.”
This means that you can use a deed to transfer the title of real property between two parties. Real property is described as land and everything attached to that land, such as a house. It should be made clear that a deed is not a property title. It’s the legal vehicle used to transfer a title.
Having proper title to a property is critical for certain actions such as applying for home-related loans and federal grants. Our article on heirs’ property discusses the hardships experienced by individuals who had their property passed to them informally.
If you’re involved in a real estate transaction, you must ensure that a deed is used and that the title has been transferred officially. The completion of this process is what awards the new homeowner the right to sell or transfer the property that is now theirs.
There are a few common types of deeds, including warranty deeds, quitclaim deeds, and grant deeds. The rest of this guide will help explain the uses of warranty and grant deeds, and the key differences between them. If you’re curious about when someone should use a quitclaim deed, you can visit our guide here.
Use of Warranty Deeds
A warranty deed provides essentially complete protection for the buyer (grantee). If the grantee later runs into any issues regarding the title to the property, they are protected, even after the deed has been transferred. In other words, the seller (grantor) is not legally off the hook.
Warranty deeds usually include present and future promises, called covenants, made by the grantor. The first is that the grantor actually has title to the property and has the legal right to convey it. Second, the property is not encumbered, meaning that part or all of the title is owed to another party due to mortgages, liens, or easements. The promise made for the future is that the grantor will legally defend the title on the grantee’s behalf, if it comes under threat.
If any of the above promises made by the grantor are breached at any time, the grantee can sue the grantor. If a grantee sues the grantor and wins, they are typically awarded the difference between what the good title would have been and the actual title of the property.
Visit our warranty deed guide for more in-depth information.
Use of Grant Deeds
Grant deeds provide a limited number of covenants, or promises. For instance, the grantor promises that they had not taken an action that could encumber the property title. They also haven’t transferred title to any other party. However, in this case, the grantor is not making any promises regarding the previous owners’ activities.
This means that a grant deed does not necessarily guarantee that the property is being transferred with good title. A prior owner may have transferred the property without selling it, meaning that the current grantor does not actually have any title to transfer.
Based on this context, if you are a seller considering a grant deed, it would be wise to conduct some forensic analysis. Pull deed records from your county recorder’s archives and go over the chain of title. You may also want to consider demanding that the grantor use a warranty deed instead.
Note that grant deeds vary in nature from state to state, and they are not used in every state. Quitclaim deeds offer even less protection than grant deeds.
What’s the Difference Between Grant Deeds and Warranty Deeds?
The main difference between a grant deed vs. warranty deed is the level of protection offered. A warranty deed offers a higher level of protection than a grant deed.
With a grant deed, the grantor is guaranteeing that they haven’t sold the property to anyone else, and that it is clear of any liens or restrictions. However, they don’t necessarily guarantee that there aren’t any title issues remaining from previous owners.
With a warranty deed, the grantor is guaranteeing the title of property holistically. They are providing a warranty that there are no issues with the title whatsoever, including issues that may have come up with previous owners, or even issues that could come up in the future. The grantor is agreeing to be held legally liable if any issues do arise and they are found to be at fault, and that they will defend the title of a property. This guarantee remains in place even after the transfer takes place.
The key difference between the two is that with a warranty deed, the grantor is guaranteeing that they will defend the title of a property, in the present and in the future. This leaves an opening for the grantee to sue the grantor if any issues with the title arise, at any point in time.
Learn How to Use Deeds to Protect Your Assets Today
When you’ve never gone through the process of buying or selling a house before, you might feel intimidated at all the legal jargon and paperwork involved. Deed this, title that — it can all get confusing. On top of that, now you’re now learning that there are different types of deeds involved.
But don’t worry; if you’re engaged in a traditional real estate transaction, then your options are narrowed down to grant deed vs. warranty deed. The key difference between these two is the level of protection offered.
Further, grant deeds are only used in certain jurisdictions. More specifically, they tend to be used for divorce proceedings as a method of avoiding property tax value reassessments.
Otherwise, most traditional real estate transactions utilize a warranty deed. That way, the grantee can rest assured that they can buy a house while getting protection from any third-party claims.
If you ever find yourself in a scenario where you’re being asked to choose between a grant deed and a warranty deed, don’t hesitate to consult your title insurer or real estate professional for advice. They will review your unique circumstances and provide you with a recommendation. However, in most cases, it would behoove you to pick the option that offers the highest level of protection, which is the warranty deed. Further, most lenders will only consider financing your home purchase if a warranty deed is involved.
Lastly, don’t forget that there is a third common type of deed that we did not discuss today: the quitclaim deed. Click here to find out what quitclaim deeds are not used in traditional buy-sell real estate transactions, and are more often used for estate planning and family matters.
If you’ve recently sold or bought your home or other type of real property, don’t forget to update your estate plan! A real estate transaction is a major life event that should serve as a trigger and reminder to adjust your estate plan. Trust & Will can help you every step of the way. To get started, click here.
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