Whether it’s the first or fifth, all homeowners want a smooth and safe transaction. An important element of this process is understanding the conduct, a legal document that transfers ownership of property. While general warranty deeds are the most common and offer a wide range of protection, you may encounter “special warranty deeds” in certain circumstances. I hope by the end of this article, you will be able to answer the question, “Should I buy a house with a special warranty certificate?” How to work to suit your home buying needs.
It is important to understand the differences between these types of conduct, as special warranty certificates provide more limited assurance regarding the title of the property. This Redfin Real Estate Article sheds light on what you need to know so that you can make informed decisions before purchasing a home. Now, let’s get started.
What is a special warranty certificate?
When you buy a home, one of the most important documents you encounter is an act. An act is a legal means of transferring ownership of a property from one party to another. In the world of conduct, “guarantee” means the degree to which the seller guarantees the title of the property. A “special warranty certificate” is a specific type of conduct that provides a limited warranty against defects in the title.
Unlike general warranty deeds that guarantee titles for past or present claims, special warranty deeds only warrant that no title issues occurred during the Seller’s ownership period. This means that the seller is not responsible for any issues that existed before the ownership of the property. This type of conduct is also sometimes referred to as a “limited warranty certificate.”
Example scenario
Imagine Sarah buying a house from the bank after Sarah goes through foreclosure. The bank will provide a special guarantee certificate. Two years later, Sarah discovers that there is an old, unpublished lien on the property from its previous owner, dating back five years ago, which the bank owns.
Because the bank uses a special guarantee certificate, it is not liable to settle this lien as it arose before ownership. Sarah is responsible for emphasizing the limited protection provided by this type of conduct and resolving this issue on her own.
When will the special warranty certificate be displayed?
Special warranty certificates are commonly used in certain real estate transactions where the seller limits his or her knowledge of the real estate history before ownership. You may encounter a special warranty certificate in the following circumstances:
Foreclosure and Bank-Owned Real Estate (REO): When a bank sells a foreclosed home, a special warranty deed is usually used. The bank guarantees that it does not interfere with the title during its ownership period. They do not guarantee any issues that occurred prior to foreclosure. New Construction by Builders: Home builders often use special warranty certificates. They can assure them that they have not created a defect in the title, as they have bought the land and built the house. However, they do not usually guarantee the title of the land history before purchasing it. Commercial Real Estate Transactions: Special warranty certificates may be desirable in some commercial transactions, particularly those involving large entities. It limits the seller’s liability for the seller’s ownership period only.
How Title Insurance Adds Buyer Protection
Despite the limited warranty provided by a special warranty deed, home buyers can enhance their protection by securing a comprehensive title insurance policy. Title Insurance protects you from financial losses due to title defects that were not found during your initial title search.
Should I buy a house with a special warranty?
Whether you need to purchase a home with a special warranty certificate will depend on your risk tolerance and transaction details. For many home buyers, a general guarantee deed offers the highest level of protection as it guarantees titles against all claims, regardless of when the seller accrues. With a special warranty deed, you increase the risk of potential title issues even before the current seller’s ownership.
However, choosing a home with a special guarantee certificate does not necessarily break the transaction, especially when the property and prices are attractive. The key is to understand what it means and take appropriate precautions to mitigate the risks.
Pros and cons of buying a house with a special warranty certificate
Understanding the advantages and disadvantages can help you make informed decisions.
Strong Points:
It is often associated with potentially good deals. Properties sold on special warranty certificates such as foreclosures may be acquired at a lower price. More clear liability to Seller: The seller’s liability for title defects is limited to the period of ownership that can simplify the transaction of a particular seller. Common for certain transaction types: standard and acceptable behavior in situations such as bank-owned real estate or new construction.
Cons:
Buyer protection is limited: You are not protected from title defects that occur before the current seller acquires ownership. If an earlier claim surfaces, you are responsible for resolving it. Possible hidden risk: Without a full guarantee, it is more likely to reveal undiscovered liens, easements, or other obstacles from previous owners. A thorough due diligence is required. In addition to comprehensive title search and title insurance, it becomes even more important to protect your investment.
Now, decide if this street is right for you
You need to consider carefully to decide whether to proceed with purchasing a home that comes with a special warranty certificate. These actions are common in certain scenarios such as foreclosures and new construction, but provide less protection than a typical warranty deed. Regardless of the type of conduct, the main protection against title issues is thorough title search and robust title insurance contracts. These measures will help you uncover potential issues and protect you financially in the event that hidden flaws appear.
