The home buying process can be highly stressful and intimidating. Your home will likely be your most significant investment, so you should make sure it’s protected from top to bottom.
While there are several ways to protect your home in terms of physical damages, you may not consider the need to protect it from financial damages due to title issues. So while you definitely shouldn’t skip out on homeowners insurance to protect your home, you also shouldn’t skip out on title protections like a warranty deed.
What is a warranty deed?
A warranty deed is a legally binding real estate document that is agreed upon by both the buyer and the property seller. In a general warranty deed, the seller certifies a clean property title and is provided with a degree of legal protection as a result. Such an agreement can protect both the buyer and the lender if there are unexpected liens, claims, or encumbrances against the property.
How does a warranty deed work?
When buying a house, the buyer and the seller agree to complete a warranty deed, in which the seller certifies that they are the owner of the property and have the legal right to transfer the title to the buyer. The seller also certifies that the property has a clean title without any loans, claims, liens, encumbrances, etc. Since this is a legally binding document, the buyer can sue the seller in the event of title issues that breach the contract.
What are the different types of deeds?
Since you’re just beginning to understand deeds in general, it’s a good idea to break down the different types available so that you can gain a complete understanding of a rather complex concept.
General warranty deed
The most common type of warranty deed used in property transfers is a general warranty deed. This type of warranty deed guarantees a clean title for the property that there are no claims on the property, and all encumbrances have been disclosed. A general warranty deed provides owners and buyers with the most protection possible since they would not be required to pay fines, fees, or liens that occurred prior to ownership.
Special warranty deed
Another type of warranty deed is a special warranty deed. This type of warranty deed does not cover as much as general warranty deeds do. They only guarantee that there have been no encumbrances of the property during their period of ownership. This type of warranty deed does not protect against any issues before the current owner’s purchase. Banks typically use a special warranty deed in foreclosures.
A quitclaim deed is a type of warranty deed that is used to renounce ownership on a property. This type of deed is commonly used in situations like divorce or inheritance. It allows the signer to avoid future liability if issues do arise with the title of the property. That said, this type of deed doesn’t technically create any warranties or guarantees -- it simply removes an individual from liability.
Deed in lieu
A deed in lieu allows borrowers to transfer the property title to the lender when they are unable to pay their mortgage. This alternative to the often lengthy and expensive foreclosure process benefits both the borrower and the lender. The lender can quickly obtain ownership of the property and re-sell it without issue, and the borrower can avoid having a foreclosure put on their credit report.
How does a warranty deed relate to title searches and title insurance?
There are many different components to the closing process when you’re buying a house. Two components that often surprise first-time homebuyers are title searches and title insurance. Based on what you’ve learned so far about warranty deeds, you might assume that if you have a warranty deed, you no longer need a title search or title insurance when buying your home. However, this is not the case.
What is a title search and do you need one?
A title search is required by most lenders and is a search performed to locate important documents related to the property in question. A title company locates documents and information regarding property ownership, liens, loans, and property taxes during the title search. Using a reputable and experienced title company to perform this research is a great way to essentially verify that all the information presented in the warranty deed is 100% accurate.
What is title insurance and do you need it?
Title insurance is required by most lenders and protects buyers and lenders from financial loss as a result of a “dirty” title. If there are undisclosed or unexpected issues on the title, you and your lender will not be on the hook. While title insurance may seem quite similar to a warranty deed, it covers a broader range of claims and offers a better degree of protection for buyers and lenders.
Warranty deeds, title searches, and title insurance compared
If you’re trying to save money on closing costs by avoiding title searches and title insurance in favor of a simple warranty deed, you may want to reconsider your approach. Your lender might not even allow you to do this. A few hundred dollars in fees for these items is well worth the protection and peace of mind related to a substantial financial investment.
Why should you get a warranty deed?
The most important benefit of getting a warranty deed when purchasing a home is financial protection. You want to protect yourself and your finances when making such a big purchase. Spending a little bit of time and money to secure such protections now will save you a ton of time, money, stress, and headaches in the future should something come up regarding the property’s title. To have 100% protection, it’s always a good idea to obtain a warranty deed in addition to a professional title search and title insurance.
How to get a warranty deed?
There are tons of benefits of getting a warranty deed, and doing so is recommended when buying a home. So how can you get one? Here’s what you need to do to use a warranty deed to adequately protect yourself:
- The first step to getting a warranty deed is to ensure that the property in question does not have any liens, claims, or encumbrances. You can obtain this information through a public records search -- usually through the county’s property appraiser website.
- Once you can guarantee no liens, claims, or encumbrances on the property, it’s time to draw up the actual warranty deed. You can either use a template from the internet or receive one from a local realtor’s office.
- Complete all relevant information once you have your template, including the names and signatures of the parties involved, a description of the property, and the transaction date.
- To be considered an official, legally binding document, you must sign the deed in the presence of a notary public.
- After the document has been signed and notarized, the last step involves filing it with your local property appraiser for it to be recorded and finalized.
Other ways to protect yourself during the homebuying process
Although a warranty deed, title insurance, and a title search are great ways to protect yourself and your investment during the homebuying process, there are additional steps that you can take to obtain the highest level of protection.
- You may want to consult with a real estate attorney during the buying process to help guide you through each step and protect blind sides that you may have never even considered before.
- You should obtain a property inspection to determine the safety and condition of the home before you purchase it. A thorough inspection performed by a professional can alert you to potential issues that could end up costing you a ton of money. If anything comes up, you can negotiate the price with the seller to cover repairs or simply walk away.
- You should purchase homeowners insurance to protect your home after closing from damage from natural disasters and unexpected events like crime. In most cases, this cost is relatively low and can save you tons of money in repairs.
Warranty deed wrap up
With hundreds of thousands of dollars on the line when buying a home, you’re going to want foolproof protection. Obtaining a warranty deed on the home you’re purchasing is one way to protect yourself from liability. In addition to obtaining a warranty deed, you should also conduct a title search and pay for title insurance, which is required by most lenders.
While the homebuying process can be confusing and scary, people are ready and willing to guide you through it. Reach out to the lending experts at Vaster Capital for any questions or concerns you have along the way.
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