Chapter: Which type of deed offers the MOST protection to the grantee (buyer)? (EN)

Chapter: Which type of deed offers the MOST protection to the grantee (buyer)? (EN)

Understanding Deeds and Conveyance

• Deed: A legal instrument that transfers ownership of real property from a grantor (seller) to a grantee (buyer). Different types of deeds offer varying levels of protection to the grantee against potential title defects.

• Conveyance: The act of transferring property ownership. The deed serves as the evidence of this conveyance.

• Title: Represents the bundle of rights associated with ownership. A “clear” or “marketable” title is free from defects that could cloud ownership.

• Title Defects: Issues that can impair a property’s title, such as:

  1. Liens (e.g., unpaid mortgages, tax liens)
  2. Encumbrances (e.g., easements, restrictive covenants)
  3. Defective recordings (e.g., errors in the deed’s legal description)
  4. Undisclosed heirs or prior owners with a claim to the property
  5. Fraudulent signatures or forgeries

Types of Deeds and Their Protections

The level of protection a deed provides to the grantee hinges on the warranties (promises) it contains.

• General Warranty Deed (GWD): Offers the HIGHEST level of protection to the grantee.

  • Covenants: A GWD contains several key covenants (promises made by the grantor). These covenants extend back to the beginning of the property’s title history.

    1. Covenant of Seisin: Grantor warrants that they own the property and have the right to convey it. Mathematically, if O represents the property, G the grantor, and R the right to convey, then Seisin implies G(R(O)) = True (Grantor has the right to convey the property).
    2. Covenant of Right to Convey: Grantor warrants that they have the legal authority to transfer the property. Often overlaps with the covenant of seisin.
    3. Covenant Against Encumbrances: Grantor warrants that the property is free from liens, easements, or other encumbrances, except those specifically stated in the deed. Mathematically, if E represents the set of encumbrances and O the property, then E(O) = Null, unless explicitly defined in the deed.
    4. Covenant of Quiet Enjoyment: Grantor warrants that the grantee will not be disturbed in their possession of the property by a third party asserting a lawful claim to the property.
    5. Covenant of Warranty: Grantor promises to defend the grantee’s title against all lawful claims made by third parties. This is the most comprehensive covenant. If a third party (T) makes a claim (C) against the property (O) owned by the grantee, the grantor (G) promises to defend the title: G defends (C(O, T)).
    6. Covenant of Further Assurance: Grantor promises to perform any acts necessary in the future to perfect the grantee’s title.

  • Legal Recourse: If any of these covenants are breached (broken), the grantee can sue the grantor for damages. This represents a significant advantage for the buyer.

  • Example: A buyer receives a GWD and later discovers an unrecorded mortgage from 20 years ago. The buyer can sue the grantor for the amount necessary to satisfy the mortgage and clear the title.

• Special Warranty Deed (SWD): Offers less protection than a GWD.

  • Limited Covenants: The grantor only warrants against title defects that arose during their period of ownership. They are not responsible for defects that existed before they owned the property.
  • Typical Language: Often includes the phrase “by, through, or under” the grantor, limiting the warranty to actions taken by the grantor themselves.
  • Example: A grantor conveys property with an SWD. An undiscovered lien from the grantor’s predecessor in title surfaces. The grantee cannot sue the grantor because the defect did not originate during the grantor’s ownership.
  • Risk Allocation: SWDs shift more risk to the grantee.

• Bargain and Sale Deed: Offers even less protection.

  • No Warranties: Contains no warranties about the title. The grantor simply conveys whatever interest they have in the property, with no guarantees.
  • Implication of Ownership: It often implies that the grantor possesses some interest in the property.
  • “As-Is” Transfer: Essentially an “as-is” transfer of title. The grantee bears all the risk of title defects.
  • Example: A buyer receives a bargain and sale deed. Later, an easement affecting the property is discovered. The buyer has no recourse against the grantor.

• Quitclaim Deed: Offers the LEAST protection.

  • No Representations: Makes no representations or warranties whatsoever about the grantor’s title or even whether they own the property. The grantor simply conveys whatever interest (if any) they may have.
  • Common Uses: Often used to clear up title defects, transfer property between family members, or in divorce settlements.
  • Risk Assessment: The grantee assumes all risk of any title defects.
  • Example: A grantor conveys property with a quitclaim deed. The grantee later discovers the grantor never actually owned the property. The grantee has no recourse. If G conveys O with a quitclaim deed, then the probability of G(O) being true is unknown.

Title Insurance

• Risk Mitigation: Title insurance provides financial protection against losses resulting from title defects. It is a separate contract from the deed.

• Due Diligence: Title insurance companies conduct a thorough title search to identify potential defects before issuing a policy.

• Policy Coverage: If a covered title defect arises, the title insurance company will either defend the title in court or pay the grantee (the insured) for their losses, up to the policy limits.

• Relationship to Deed Type: While a GWD offers the most direct protection through covenants, title insurance provides a crucial safety net regardless of the type of deed used. Even with a GWD, undiscovered defects can still exist.

Comparative Table: Deed Type vs. Grantee Protection

Conclusion

The General Warranty Deed offers the most protection to the grantee (buyer). It provides the broadest warranties against title defects and gives the grantee the greatest recourse against the grantor if a problem arises. However, reliance solely on the deed type is insufficient. Obtaining title insurance is crucial to protect against hidden title defects, regardless of the deed used.