The deed proves ownership of a house. However, not all deeds provide the same level of protection for you as the new owner. For example, some types of deeds only protect the current owner.
Other types of deeds will ensure that the title to the property is free from any previous disputes. Protecting your money by understanding the differences in general vs. special warranty deeds can be very beneficial.
In this article we will explain what each type of deed is and give you some helpful tips to keep in mind when signing.
Why Deeds are Essential in Real Estate Transactions
A deed is your proof of ownership. The deed is the legal document that transfers the property from the seller to the buyer.
What many miss about deeds, is the type of deed received determines the degree of protection provided to the title. a deed may only protect the title during the seller’s ownership. or, it could protect the entire history of the property.
Without a strong deed, buyers could inherit unpaid taxes or hidden liens. Therefore, understanding the deeds matters before developing a plan to improve your rental property’s income.
Key Differences Between General and Special Warranty Deeds
All deeds are not created equal. The main difference is duration. Some cover the total history of a piece of land, while others will only cover the time that the present owner has held it. Before buying your next house, here are some things to look for. A Deed Protects Your Property Rights.
What Is a General Warranty Deed?
A general warranty deed offers the highest protection. A general warranty deed protects your title and ownership completely. A seller provides a warranty that their title has no defects and that they are responsible for any claims against the title.
Whether a claim occurred years ago or recently, the seller must be responsible for defending your rights to own the property. The general warranty deed is the best option for residential home purchases.
In simple words, a warranty deed in real estate protects buyers by assuring that the title is free from hidden claims or liens. Most mortgage lenders require it because it will provide you with complete peace of mind.
What Is a Special Warranty Deed?
A special warranty deed offers limited warranty coverage. When using a special warranty deed, the seller only guarantees that there are no title issues that occurred during their time of ownership. If a problem arises from an issue caused by a previous owner, the selling authority will not be responsible.
You may see these used in commercial deals, foreclosure sales, bank owned sales. The reason for the name similarity between the two types of deeds is due to the amount of responsibility provided to the buyer. A general warranty deed provides full protection, while a special warranty deed provides narrower protection.
3 Practical Tips Before Signing Any Warranty Deed
Before you sign on the dotted line, do some smart thinking. A deed is a powerful document and if you don’t know what you’re getting into it could hurt you. These three tips will help protect your investment and prevent potential surprises down the road.
1. Always Get a Title Search First
Hire a professional to run a title search before you buy. This review of public records will discover any existing liens, unpaid taxes or ownership claims. Even with a general warranty deed you want to know about any potential issues that may have been created.
A clean title search will give you peace of mind and confirm the seller has the legal right to transfer the property to you. Think of it as doing your homework before making one of the largest purchases of your life.
2. Know What You’re Signing
Don’t simply assume all deeds are created equal. Read the document carefully or have your real estate attorney review it to find the specific language that describes what type of warranty the seller is offering.
When you see language such as “grant, bargain, and sell,” it generally indicates that the seller is providing you with very strong protections. However, if the deed you receive is identified as either a “Special Warranty Deed” or a “Limited Warranty Deed,” the seller’s protections are significantly reduced.
Before signing, ask the seller or the person preparing the deed about their liability. The protections provided in the deed you sign today will be your protection tomorrow.
3. Work With Professionals Who Understand Local Rules
Philadelphia has its own set of real estate laws. For example, the City of Philadelphia requires rental licenses and Certificates of Rental Suitability for landlords. A good property manager in Philadelphia can assist landlords in avoiding potential title issues that may negatively affect their ability to rent properties.
Property managers in Philadelphia know the local regulations and can steer you to make good investment decisions. Additionally, they can connect you to good real estate attorneys and title companies that know the Philadelphia market well.
Bonus: Common Mistakes Buyers Make with Deeds
Experienced buyers can easily slip up in the same way as first-time buyers when it comes to signing a deed. The errors listed below may seem minor, but they could prove costly.
Below are some common things to look out for before you find yourself learning the hard way.
Assuming All Deeds Offer the Same Protection
The biggest mistake made by many buyers is assuming all deeds provide equal protection. Some buyers do not know the difference between “Special Warranty Deed”, (which provides limited title protection) and a “General Warranty Deed” (which provides full title protection).
Buyers will assume their risk has been completely eliminated, only to find out after the sale that there were past problems with the property. Always check to see if your purchase will be a General Warranty Deed.
Skipping the Title Search to Save Money
Title searches are relatively inexpensive (a couple of hundred dollars). Not doing one may result in an expensive title problem for you. Many buyers choose to skip the title search because they either believe it is unnecessary or see it as simply another additional expense.
They find out about some type of lien (e.g., contractor), unpaid property tax, or other claim to the property. The money they were trying to save on the title search is worthless compared to the money they will have to pay their attorney. Get the title search; it is cheap insurance.
Not Reading the Deed Before Signing
There are numerous individuals who sign legal documents without first reviewing the document. Language in deeds can significantly affect your rights to the property. When you do not review the deed, you will be unaware of whether the seller has made provisions for certain exceptions or limitations.
Spend 5 minutes reviewing the deed, or ask your attorney to explain it to you. Understand with certainty what the seller agrees to provide-and what he/she does not.
Forgetting to Check the Seller’s Identity
You would think that this should be simple, but many people make the error of overlooking it. The owner of the property must sell it to you. Check the seller’s name against what appears on public records and prior deeds.
For properties being sold by a bank or company, confirm that the signer has the authorization to sign on behalf of the company. A deed signed by someone other than the owner is void.
Ignoring Local Rules and Requirements
Real Estate is local; what works in another City will not work in Philadelphia. There are some specific rental property licensing regulations, lead paint disclosure requirements, and eviction diversion programs for rental properties in the city.
By failing to follow the city’s rental property regulations, you can receive fines or be prohibited from renting your property. Working with local real estate professionals familiar with the specific requirements of Philadelphia will help protect you from making this error.
Conclusion
The type of Deed you sign can impact the security of your Property Ownership. A General Warranty Deed provides full historical protection for the subject property. A Special Warranty Deed only provides protection to the Seller during their time of ownership.
Before signing the Deed, have a Title Search performed, read through the document carefully, and be aware of typical errors. Also, partnering with a trusted property management company in Philadelphia can help property owners avoid potential title disputes that could affect rental operations.
