Special Warranty Deed

How a Special Warranty Deed Works

A special warranty deed transfers title from one owner (called a grantor) to another owner (called a grantee). The title is transferred with a limited warranty of title. By signing the deed, the grantor promises that—for as long as the grantor has owned the property—nothing has happened that would cause title issues for the grantee. This promise also extends to others that may acquire title through the grantee. The grantor makes no promises about what may have happened before the grantor owned the property.

Special warranty deeds place some risk on the grantor and some risk on the grantee. The grantor is legally responsible for any title issues that arose while the grantor owned the property. The grantee assumes the risk of any title issues that arose before the grantor owned the property.

Other Names for Special Warranty Deeds

Of all of the types of deeds, special warranty deeds have the largest variety of names. Depending on the state, special warranty deeds may be called grant deeds, covenant deeds, statutory warranty deeds, or limited warranty deeds. Each name refers to essentially the same document: A deed that makes the grantor responsible for title issues but limits the grantor’s liability to the period when the grantor owned the property.

Comparison of Special Warranty Deeds to Other Forms of Deeds

The designation of a deed as a special warranty deed identifies the warranty of title. The warranty provided by a special warranty deed is limited in the sense that it only covers the period when the grantor owned the property.

By dividing risk between the grantor and grantee, the limited warranty of title provided by a special warranty deed provides a middle ground between quitclaim deeds and warranty deeds.

• A quitclaim deed (also known as a quit claim deed and sometimes erroneously called a quick claim deed) provides no warranty of title. Because a special warranty deed provides a limited warranty of title, it provides more protection than a quitclaim deed.
• A warranty deed (also called a general warranty deed) provides a full warranty of title that extends to all time, including the period before the grantor owned the property. A special warranty deed does not provide this much protection. It only covers the period when the grantor owned the property.

In the sale context, the protection provided by the special warranty title has been supplemented—and sometimes replaced—by title insurance. Title insurance allows the grantor to avoid the risk of unknown title issues and provides the grantee with the protection of a solvent financial institution to look to if title issues arise.

Special warranty deeds also differ from estate planning deeds, including life estate deeds, lady bird deeds, and transfer-on-death deeds. Each of these deeds is named after the estate planning and probate avoidance benefits it provides. Special warranty deeds, in contrast, are named after the warranty of title they provide.

Common Uses of Special Warranty Deeds

Special warranty deeds are often used in negotiated situations, where the grantor is uncomfortable with the liability associated with a warranty deed and the grantee wants more protection than a quitclaim deed. Common uses include:

• Transferring real estate to a trust—like a living trust—that the transferor controls or benefits from;
• Transferring real estate to a business—like a limited liability company—that the transferor owns;
• Selling commercial or multi-family residential property;
• Transferring property to a new owner that is purchasing title insurance on the property and is not concerned with the limited warranty of title; or
• In other circumstances where the current owner does not want to be legally responsible for problems with title that arose before the current owner owned the property.

The middle ground of protection provided by a warranty deed makes it appealing in these situations.

How to Create a Special Warranty Deed

The legal basis for the validity of a special warranty deed depends on state law. In some states, like Alabama, a specific statute authorizes the creation of a special warranty deed. In others, like Michigan, special warranty deeds (called covenant deeds in Michigan) are accepted under common law. Even in states that provide statutory language, the deed must take into account the other elements of a deed. These features include:

• A valid legal description;
• A statement of the consideration changing hands or statement that the deed is without consideration;
• If there is more than one grantee, a statement of the manner in which the grantees will hold title;
• Recording requirements, including the correct font size, page margins, and other page format requirements; and
• Signature blocks and notary acknowledgments that comply with the statutory format.

When creating special warranty deeds, it is important to understand the legal basis and create a deed that meets the requirements of that state. Using a generic form is dangerous. A special warranty deed that is valid in one state may be a crime in another state. For example, Michigan law makes it a crime to use the word “warranty” in any deed that does not convey a full warranty of title. An uninformed property owner using a generic, fill-in-the-blank form for a special warranty deed could become criminally liable for including the wrong language.