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What is a Limited Warranty Deed?

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  • Written By: U. Ahern
  • Edited By: W. Everett
  • Last Modified Date: 18 November 2016
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A deed is used to transfer the ownership of a piece of real estate from the seller (grantor) to the buyer (grantee). While there are several types of deeds, the limited warranty deed is the most favorable to the seller. The seller guarantees, or warrants, that the deed title is free of any claims during his ownership. The limited warranty deed limits the potential liability of the seller and does not hold him liable for any encumbrances against the property prior to his ownership. An encumbrance limits the owner in his use of the property or ability to transfer owned property.

There are four main types of deeds used for property transfer: General warranty deed, limited warranty deed, bargain and sale, and quitclaim deed. The deed is a legal document that not only transfers the ownership or title of a piece of property, but the type of deed used determines who is liable if problems arise with the title to the property after the sale. Different deeds offer various degrees of protection for the seller and the buyer.

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The general warranty deed offers the greatest protection for the buyer. This is also the type of deed required by most title insurance companies before they will insure a title. In essence the seller states that the title to the piece of property is clear. Any known encumbrances would be included in the deed. If problems with the title do arise the seller can be held legally responsible. General warranty deeds are typically used in personal real estate transactions

Both the quitclaim and the bargain and sale deed favor the seller. The bargain and sale deed is often used in cases of foreclosure or tax sales. It does transfer the title but does not guarantee the seller that there are no encumbrances.

A quitclaim deed does not guarantee that the seller has the title and right to sell a piece of property. The seller merely “quits” his claim to the property, whatever that may be, to the buyer. These two types of deeds involve the most risk for the buyer because there is minimal to no recourse against the seller if title problems come to light after the sale.

The limited warranty deed assures the buyer that the seller has done nothing during his ownership of the property to create an encumbrance that is not clearly defined in the deed. The warranty is limited to the period that the seller has owned the property. The seller takes no responsibility for any factors that come to light after the sale if they were created before his ownership. This is the most favorable type of deed for a seller to use because it limits his liability to the time the property was under his control. It is often used in commercial property sales. A thorough title search is the best approach for a buyer when purchasing any piece of property.

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Melonlity
Post 2

@Markerrag -- here's another question. If someone is financing a piece of property, will the lending company even issue a mortgage on a property that is covered by a limited warranty deed? I don't know the answer to that one, but I do know that bankers like to avoid risk and issuing a loan on a piece of property that is conveyed through anything but a general warranty deed sure seems risky.

Markerrag
Post 1

Under what circumstances would a buyer agree to a limited warranty deed instead of a plain old warranty deed? If a good title search is done and liability falls on the title company if the property is encumbered, isn't the seller already protected?

A seller not willing to rely on a title company to shield him or her from liability just seems suspicious.

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