“Special” ’Spesh – ?l – Defined as being different from what is normal; unusual in a good way; better or more important. Special is not special when it defines the type of deed the Buyer will receive.
Ohio, by statute, provides for three specific types of deeds that are used to transfer title to real estate in most residential real estate transactions – a General Warranty Deed, a Special Warranty Deed (also referred to as a Limited Warranty Deed – the two terms being used interchangeably), and a Quit Claim Deed (Ohio Revised Code §5302.06, §5302.08, and §5302.11). These statutes establish exactly what warranties and covenants these deeds provide to a Buyer.
General Warranty Deeds are The Gold Standard and the most commonly used Deed. The use of the Special Warranty Deed has increased in recent years and is the Seller’s preferred deed for commercial, investor-owned, and bank-owned properties. Consequently, REALTORS® need to be aware of the distinctions between these two types of deeds.
For both a General Warranty Deed and a Special/Limited Warranty Deed, the Seller warrants that:
• the Seller owns the property; and
• the Seller has the legal right to sell the property.
With the General Warranty Deed, the Seller also warrants, in addition to the above, that:
• the property is free from all encumbrances, and that the Seller will defend the Buyer’s title forever against lawful claims and demands from all persons.
However, with the Special/Limited Warranty Deed, the Seller only warrants that:
• the property is free from all encumbrances created by Seller; and
• the Seller will defend the Buyer’s title forever against lawful claims and demands resulting from Seller’s ownership only.
The fundamental difference between the two types of deeds is that a General Warranty Deed offers Buyers protection for any and all prior defects in the title; whereas, a Special/Limited Warranty Deed offers Buyers protection against only those defects created by a Seller during the period that the Seller owned the property.
Consequently, with the General Warranty Deed, a Buyer has remedies for title defects back through the chain of title prior to Seller’s ownership, but with the Special/Limited Warranty Deed, a Buyer has remedies for only those title defects created during the limited period of Seller’s ownership. The Seller has no liability for title defects that existed prior to Seller’s ownership.
Since it is not uncommon for the Seller to be in title for a very short period of time before they resell the property, the distinction is extremely significant.
As you are more likely to see the term Special Warranty Deed used in a contract rather than Limited Warranty Deed, which is more accurate, do not let the use of the word “Special” suggest more than what it is. If presented with a contract that specifies that the Seller will provide a Special/Limited Warranty Deed, exhort your Buyer to consult an attorney so they thoroughly understand the risks.
In these situations, the Owner’s title insurance policy becomes even more important to a Buyer. Despite the fact that a Special/Limited Warranty Deed’s protection is limited to the period of Seller’s ownership, the Owner’s title insurance policy will insure title back through the “chain of title,” and in effect, provide the Buyer the protections lacking in the Special/Limited Warranty Deed.
We’ve discussed the Good and the Bad; now, for the Ugly … a Quit Claim Deed is a third type of Deed and is not used often in residential real estate transactions. From a Buyer’s perspective, it is the least desirable of Deeds. Whereas the Special/Limited Warranty Deed provides warranties for the limited time of Seller’s ownership, the Quit Claim Deed provides no warranties of any kind from Seller. The Seller makes no representation regarding title and a Buyer receives whatever title the Seller has or doesn’t have. The Buyer takes title subject to any or all title defects. This can get very ugly because if the Seller has no title, because the title is defective, the Buyer receives no title. The Seller is not warranting that Seller owns the property or that Seller can legally transfer ownership. Quit Claim Deeds should be avoided; and if the contract calls for a Quit Claim Deed, the Buyer should once again be exhorted to consult with an attorney. There is no guarantee that a title company will issue a title insurance policy to the Buyer when the Buyer acquires title through a Quit Claim Deed.
All Deeds are not created equal; if you understand the differences, neither you nor the Buyer will be distressed by the potential consequences. [Remember the old maxim: No Quit Claim Deed or Special Warranty Deed goes unpunished.]