Ownership of, or title to, real estate, whether commercial or residential, is transferred with certain guarantees or warranties made by the seller that the title to the property is being transferred free and clear of any ownership claims or other encumbrances (including financial ones). 

 

General Warranty Deed

 

A General Warranty Deed is one type of deed that is used to transfer real estate. A General Warranty Deed guarantees to the buyer that the title to the real estate is free and clear from any defects or encumbrances, including those accrued by any previous owner.

 

A General Warranty Deed is not a substitute for title insurance. By paying for title insurance, a buyer shifts the risk of overcoming title defects from himself to the title company. It’s far easier (and cheaper, from a litigation perspective) to for a buyer to make a “title claim” (rely on the title company to overcome the title defect) than to directly sue the seller to enforce their warranty. Sellers may leave town, die, or be insolvent.

 

Special Warranty Deed

 

A Special Warranty Deed is the type of deed by which the seller only warrants or guarantees the title against defects in title that may have accrued during the period of its ownership of the property. The grantor of a Special Warranty Deed does not provide a warranty or guarantee against any defects in title that existed prior to its ownership.

 

Although the use of the word “special” in the name of a warranty deed may imply to a real estate buyer the idea that the deed is of higher quality, this is misleading since a Special Warranty Deed is actually of lower quality, A Special Warranty Deed offers less protection against possible defects in title than a General Warranty Deed because a buyer has no remedy against a seller for a title defect accrued prior to the seller’s ownership.

 

 

Does It Matter Which Deed Is Specified in the Agreement of Sale?

 

 

The boilerplate language in the PAR Agreement of Sale prescribes a “Special Warranty Deed.” The forms committee of the Pennsylvnia Association of REALTORS® purposefully omitted “General Warranty Deed” from the boilerplate language of the Agreement of Sale.

 

It is common to see a change the PAR Agreement of Sale to say that a seller shall instead convey ownership by a General Warranty Deed. 

 

As a practice point, PAR’s legal counsel recommends that a Seller, when faced with an offer that specifies they convey title by a General Warranty Deed, strike that language, thereby reverting the type of deed conveyed back to a Special Warranty Deed.

 

PAR’s legal counsel further states that “no deal should fall apart on account of the choice of a Special Warranty Deed.” Why?

 

No rational Seller would take responsibility for encumbrances accrued prior to their ownership. This is why General Warranty Deeds should be avoided by Sellers.

 

From a Buyer’s perspective, a title policy serves to even the quality between a Special Warranty Deed and a General Warranty Deed.

 

If a buyer is borrowing money to help with their purchase, the mortgage lender will always require that buyers purchase title insurance. In the case of “cash” purchases, no rational buyer should purchase real estate without also purchasing title insurance.