Deeds

Do I Use a Warranty Deed, a Special Warranty Deed, or a Quit-Claim Deed?

That is the Question

Gregory L. Miles, Attorney

Persons in real estate frequently encounter the decision as to whether to use a warranty deed or a quit-claim deed.  Less frequently, they may be confronted with special warranty deeds.  Each has its appropriate use and place in real estate transactions.  However, the user must have a basic understanding of the effect of each one of the documents and why one would be chosen as opposed to another.  It is not the purpose of this brief article to provide a detailed analysis and it is not a substitute for consulting with an attorney, but will serve as a basic explanation of these types of deeds.

Warranty Deed

The essential effect of a warranty deed is to make certain promises to the person to whom the property is being transferred.  Theses are referred to in legal jargon as the “warranties of title”. A true warranty deed promises, in effect, that the grantor, or in other words the person who is transferring the property, has a good and proper title, that there are no liens on the property, and that there are no easements on the property so that the ownership of the property will be clear and complete.

As a practical matter, it is a rare case when any title is completely “clear and clean” in the sense of a true warranty deed.  Consequentially, in every transaction the person transferring the property should be asking, “Am I making promises which I cannot keep and honor?”

The importance of the “warranties” or in non-legal terms “promises” that are made in a warranty deed can have great significance.  For example, if a warranty deed has been given and it later turns out that there are problems in title, the person giving the warranty deed may be subject to a lawsuit by the grantee in which the grantee can force that person to attempt to clear title, pay damages or otherwise bear the responsibilities for defects in title or other problems relating to the property.  It may come as a surprise that if property is transferred or sold through warranty deed and there are outstanding taxes at the time of the transfer, a warranty deed could result in the grantor being liable for those taxes even though the grantor did not think that he or she would be the one paying the taxes.

Under Arizona law, just using the words “grant” or “convey” create such warranties of title.  See A.R.S. § 33-435.

Nevertheless, warranty deeds are used in most residential transactions and seem to be favored by title companies.

When using a warranty deed the following are some of the things that the grantor may want to consider:

1) Carefully review the title report.  Do not assume that just because a real estate agent or title officer says that the “title is clean” that that is necessarily true.  Each one of the title exceptions shown in the title report must be analyzed and understood.  Too often, it is taken for granted that these are just “standard exceptions” when you file the deed.  That may not always be the case.  For example, a property may show an old utility easement across it.  At first glance, the grantor may be inclined to say, “Well, that is not my problem. It has been there for years.  Besides I know that there is nothing on the property.”  However, careful examination could disclose a utility easement going right up the middle of the property which makes it unable to be developed.

If the person looking at the title report does not have the expertise to understand and analyze the exceptions, legal counsel should be consulted and even perhaps a registered surveyor or civil engineer hired to assist before they sign the deed.

2) A grantor has the power to limit the ‘warranties’, or in other words some of the ‘promises’, that are made in a warranty deed by proper wording in the deed.  Many  warranty deed forms contain an exemption on the deed that says something like this, “conveyance is made subject to all easements, liabilities, matters of record, etc.”  In most cases, a grantor would be unwise to sign a warranty deed that did not contain such a limitation on the scope of the warranties promises.

In some cases, it is even possible to create an agreement in which a buyer of property agrees to rely solely on the title insurance in the event that there are title defects, and not to assert claims against a grantor who has given warranties.

3) It is wise to inspect real property and in some cases even have a survey.  Often, there are defects in the title or the status of the property which would not be readily apparent from a title report or other “legalistic” examination of the title.  This would include such things as property lines, fences being in the wrong location, utilities which are not disclosed in the recorded documents, buildings being misplaced and practically any other type of defect that can be imagined.  Normally a full ALTA survey is the only way to determine that, however at times, less expensive and involved surveys can be of assistance to a grantor in determining whether to provide a warranty deed.

Finally, as a practical matter, in most residential transactions involving established subdivisions which have been approved by the cities and counties where the subdivisions are located, are appropriate.  It would still be wise to follow some of the suggestions referred to above.

In summary, a general warranty deed in essence says, “I promise that I own this property, there are no matters of title which will affect your title, and if there are title defects I will be willing to pay the cost to defend your title, and pay the damages which may arise from it.”  Consequentially, in each real estate transaction the grantor, that is the person passing title of the property, would do well to carefully examine the status of title, inspect the property, and if the time and financial resources are available consult with legal counsel and a surveyor.  In a residential transaction in established subdivisions this is usually not done but there is no assurance that problems will not arise.

Quit Claim Deed

In contrast to a warranty deed discussed above, a so called “quit claim deed” gives greater protection to the seller, and gives virtually no protection to the buyer. It is for that reason that title companies tend to use warranty deeds in the residential transactions.  Sellers should be cautious because often real estate agents and title companies will “demand” the use of a warranty deed but that is not required by the law, and knowledgeable attorneys and escrow officers will recognize that that is generally not a necessity under law.  Sometimes in small transactions a title company may require a warranty deed as a matter of policy.

In contrast to the warranty deed which gives the promises set forth above, the Arizona quitclaim deed in essence says, “I do not know if I own this property or even have a claim in the property.  However, whatever I might have I give to you.”  While that is not the precise legal meaning of a quit claim deed it is a convenient way of thinking of its scope.  In the event of defects of title, unpaid taxes, and other sorts of claims the quit claim gives no protection to the buyer; however it protects the seller who has made essentially no promises.  Whenever possible it would be “convenient” for a seller to use a quit claim deed.  However, a buyer should be reluctant to accept a quit claim deed without careful analysis of its impact in a real estate transaction.

Quit claim deeds are often used where a sliver of property is disputed between neighbors, when there are potential title issues or issues available if the property were inspected and surveyed or, the buyer is willing to rely solely on title insurance which has been issued.

Buyers should beware of quit claim deeds because they can limit the buyer’s rights.  Sellers should be cautious to give warranty deeds, and realize that buyers may be reluctant to accept a quit claim deed.

A quit claim deed, in contrast to the use of the words “grant” or “convey”,  as set forth in A.R.S. §33-435, states that “I do hereby quit claim”.  Often additional words will be inserted in the documents to the effect that “I make no warranties whatsoever”.

Standard forms are generally available.

Special Warranty Deed

A special warranty deed can sometimes bridge the gap between giving a full warranty deed or a quit claim deed when a seller is reluctant to assume the responsibilities of a warranty deed.  These circumstances often arise when, for example, a family member is a trustee in a family living revocable trust and is going to transfer property to a beneficiary.  The trustee may feel that he or she should not be assuming any responsibility for title and therefore reluctant to give a warranty deed.  The trustee may give a special warranty deed instead.  In complex real estate transactions, special warranty deeds have, over the years, become more and more frequently used because they offer some minimal protection to the buyer and have limited warranties on behalf of the seller.

In essence a special warranty deed could be interpreted as saying “I can not promise you what the condition of title or what has happened to the property.  However, since I have been the titled owner of the property there are no title defects that I myself have created”.  Although that explanation does not precisely correspond with the legal explanation, it is a useful way of thinking of special warranty deed.

Consulting with knowledgeable real estate legal counsel is a good idea.

Summary

Common uses of a general warranty deed would include: (1) Insured residential transactions in established subdivisions which have been approved by city and county and in connection with which a public report was issued.  In this context, many of the “serious problems” would be or have been identified and resolved in the subdivision process.  (2) Complex commercial and land transactions where there has been a careful analysis of the property through survey, careful review and analysis of the title report.

Common uses of a quit claim deed are: (1) To resolve boundary disputes between neighbors, or other disputed property where one party who is going to give up any “claim” it has on the property but does not want to make any promises that the title is proper or valid in favor of the grantor.  (2) Complex transactions where the grantor has reservations about the status of title and the grantee is willing to accept title insurance as the sole assurance of title.  Sometimes, the grantee will obtain what is referred to as “extended coverage” and other modified title insurance which gives significant protections against the types of things which are concerns in relation to title.  These protections are usually not given in standard owner’s policies but may involve a costly survey to make sure that there are no problems.

A special warranty deed can be used when:  (1) The seller or one to transfer the property has not been personally involved with the property and can not give any assurance regarding prior title status.  Classic use examples would be a trustee in the family trust or a personal representative in a probate. (2) Commercial or other transactions where there is some doubt about the status of title, but the grantor is willing to assure that he or she has not done anything to affect the title.

Finally, this article does not affect all of the complexities in relation to the use of a warranty deed, special warranty deed or quit claim deed.  However this should give the reader a basic legal description of the documents available and the implications of the use of each.

This article is not intended to be legal advice, and should not be relied upon as a substitute for consulting with competent legal counsel.