Chapter: Which type of deed provides the greatest protection to the grantee (buyer)? (EN)

Chapter: Which type of deed provides the greatest protection to the grantee (buyer)?

Understanding Deeds and Title Transfer

• Deeds as Legal Instruments: A deed is a legal instrument used to transfer ownership of real property from a grantor (seller) to a grantee (buyer). The deed serves as evidence of this transfer and outlines the rights and obligations associated with the property.
• Title: Refers to the legal right to own, possess, use, control, and dispose of property. A ‘clear title’ implies ownership is free from encumbrances, liens, or other claims that could cloud ownership.
• Conveyance: The act of transferring ownership of real property. This is typically done through the execution and delivery of a deed.
• Importance of Protection: The level of protection offered by a deed is directly related to the assurances (covenants) it provides regarding the grantor’s ability to convey clear title.

Types of Deeds and Their Covenant Protections

1. General Warranty Deed (GWD):

   • Definition: A GWD offers the highest level of protection to the grantee. It contains several covenants (promises) from the grantor, guaranteeing the grantee is receiving a clear title free from defects, whether those defects arose before or during the grantor’s ownership.

   • Covenants: GWDs typically include the following covenants, which are essentially promises made by the grantor:

     • Covenant of Seisin: Grantor warrants they own the property and have the right to convey it. If false, the grantee can sue for breach.
     • Covenant of Right to Convey: Similar to seisin, it specifically warrants the grantor has the authority to transfer ownership. This is important if the grantor is acting as a representative.

     • Covenant Against Encumbrances: Grantor warrants the property is free from any liens, easements, or other encumbrances, except those specifically listed in the deed.

       • Example: If an undisclosed mortgage exists, this covenant is breached.
         * Covenant of Quiet Enjoyment: Grantor warrants the grantee’s right to possess and enjoy the property without interference from others with a superior claim.

       • Implication: Protects the grantee from eviction due to a prior claim on the property.
         * Covenant of Warranty: Grantor warrants they will defend the grantee’s title against any and all lawful claims arising in the future. This is the most important covenant because it obligates the grantor to defend against any title defects, regardless of when they arose.
         * Covenant of Further Assurances: Grantor promises to execute any future documents necessary to perfect the title. This ensures the grantee can get any additional paperwork needed to solidify their ownership if any issues arise.

   • Grantor Liability: The grantor is liable for damages resulting from a breach of any of these covenants. These damages can include legal fees, losses due to title defects, and diminished property value.

2. Special Warranty Deed (SWD) / Limited Warranty Deed:

   • Definition: Offers less protection than a GWD. The grantor warrants only against title defects or encumbrances that arose during their period of ownership. They are not responsible for issues that existed before they owned the property.
   • Covenants: SWDs usually contain only the covenants of seisin and against encumbrances, but limited to the grantor’s period of ownership.

   • Grantor Liability: Liability is restricted to issues arising from the grantor’s actions or inactions during their ownership.

     • Example: If a prior owner created an unrecorded easement, the grantor under a SWD is not liable.
       • Risk Allocation: The risk of pre-existing title defects falls on the grantee.
       • Use Cases: Commonly used by corporations, banks selling foreclosed properties, or individuals uncomfortable with the broad liability of a GWD.

3. Bargain and Sale Deed:

   • Definition: Contains no warranties whatsoever. The grantor merely implies they have some interest in the property and are conveying it to the grantee.
   • Covenants: Typically, no covenants are included in a bargain and sale deed.
   • Grantor Liability: The grantor assumes no liability for title defects. The grantee receives whatever interest the grantor holds, whether good or bad.
   • “As Is” Basis: The property is essentially conveyed “as is,” placing all title risk on the grantee.
   • Use Cases: Often used in foreclosure sales, tax sales, or transfers where the grantor is unsure of the exact extent of their ownership.

4. Quitclaim Deed:

   • Definition: Provides the least protection. The grantor simply conveys whatever interest they might have in the property, without any warranty or representation of ownership. It does not even imply the grantor has any actual interest in the property.
   • Covenants: No covenants are included.
   • Grantor Liability: The grantor assumes no liability whatsoever.
   • Risk: The grantee takes the property subject to all existing defects and encumbrances, regardless of whether the grantor was aware of them.
   • Use Cases: Used to clear up title issues, transfer property between family members, or in divorce settlements where the exact extent of ownership is unclear or contested.

Title Insurance

• Purpose: Title insurance is a separate insurance policy that protects the grantee (buyer) against financial loss from defects in title, undisclosed liens, or other encumbrances.
• One-Time Premium: A one-time premium is paid at closing.
• Policy Coverage: The title insurance company conducts a title search to identify potential problems before issuing the policy. If a covered title defect arises, the title insurance company will either defend the title in court or compensate the insured for any loss.
• Importance: Even with a GWD, title insurance is highly recommended to protect against hidden or undiscovered title defects.
• Relationship to Deeds: Title insurance supplements the protection offered by the deed. While a GWD provides covenants from the grantor, title insurance provides financial protection regardless of the grantor’s solvency or ability to fulfill those covenants.

Hierarchy of Protection

The level of protection offered by each type of deed, from highest to lowest, is as follows:

1. General Warranty Deed (Highest Protection)
2. Special Warranty Deed
3. Bargain and Sale Deed
4. Quitclaim Deed (Lowest Protection)

Mathematical Representation of Risk

We can qualitatively represent the risk assumed by the grantee for each type of deed. Let R represent the risk.

• R_GWD < R_SWD < R_Bargain < R_Quitclaim

This inequality shows that the risk to the grantee increases as you move from a General Warranty Deed to a Quitclaim Deed. While not a precise quantitative formula, it provides a clear understanding of the relative risk levels.

Practical Considerations & Enhanced Due Diligence

• Title Search: Always conduct a thorough title search by a qualified professional regardless of the type of deed. This helps identify potential issues before closing.
• Survey: Obtain a survey of the property to identify any boundary disputes or easements.
• Professional Advice: Consult with a real estate attorney to understand the implications of each type of deed and ensure the chosen deed is appropriate for the transaction.
• Negotiation: The type of deed used is often negotiable. The buyer should negotiate for the highest level of protection possible.

Conclusion

The General Warranty Deed provides the greatest protection to the grantee (buyer). It offers the most comprehensive covenants guaranteeing clear title and protecting against defects arising both before and during the grantor’s ownership. While other types of deeds can be used in specific circumstances, understanding the level of protection they offer is crucial for making informed decisions and minimizing risk in real estate transactions. Supplementing a GWD with title insurance provides an even greater layer of security for the grantee.