Special Warranty Deed: What It Covers, When to Use It, and Investor Risks
Key Takeaways
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[cite_start]
- A special warranty deed guarantees the title is clear only for the period the seller owned the property[cite: 1285]. [cite_start]
- It shifts more risk to the buyer compared to a general warranty deed, as it does not cover defects from prior owners[cite: 1287, 1301]. [cite_start]
- This deed type is frequently seen in **commercial transactions** and **foreclosure sales** where the seller wants to limit liability[cite: 1303, 1309]. [cite_start]
- To manage risk, buyers must secure strong title insurance with **extended coverage**[cite: 1344].
What is a Special Warranty Deed?
[cite_start]A **special warranty deed** is a legal document that transfers property ownership and guarantees the title is clear *only* for the period the seller owned it[cite: 1285]. [cite_start]This type of deed offers **limited protection** compared to a general warranty deed[cite: 1286].
[cite_start]The seller, or grantor, promises there were no title issues like liens or claims during their ownership[cite: 1286]. [cite_start]However, they do not cover anything that happened before they took possession, which makes the buyer responsible for any older title defects[cite: 1287]. [cite_start]The term "special" can be misleading, as it indicates a slice of the full history, not extra protection[cite: 1289, 1290].
Where Are Special Warranty Deeds Used?
[cite_start]Special warranty deeds are commonly used in commercial real estate deals, especially when the seller has limited knowledge of the property's full title history[cite: 1309].
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- **Commercial Transactions:** This deed limits the seller's liability to only the time they owned the property, which is preferred by corporate entities and in deals where properties change hands frequently[cite: 1312, 1313]. [cite_start]
- **Foreclosures and Bank Sales:** Banks and lenders often use them when selling foreclosed properties to quickly offload assets while limiting exposure to title issues they didn't cause[cite: 1315, 1316].
Special Warranty Deed Comparison
Managing Investor Risks
✅ When to Accept the Deed
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- If the property has had a **clean recent ownership record**[cite: 1343]. [cite_start]
- If the buyer plans to purchase **strong title insurance** with extended coverage[cite: 1344, 1367]. [cite_start]
- If the purchase price is negotiated to reflect the added risk[cite: 1345]. [cite_start]
- When buying distressed property, where the deed type is often non-negotiable[cite: 1346].
⚠️ Primary Risks for Buyers
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- **Title Defects from Prior Owners:** The buyer assumes all responsibility for any liens or disputes that occurred before the seller's ownership[cite: 1396, 1287]. [cite_start]
- **Need for Deeper Due Diligence:** Investors must budget for more extensive title research and potential legal costs if claims arise[cite: 1347]. [cite_start]
- **Less Protection:** It offers less protection than the standard general warranty deed used in most residential sales[cite: 1396].
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LoopNet Team
Senior Market Analyst at Murivest Realty Group with over 10 years of experience in commercial real estate investment and market research. Sarah specializes in identifying emerging market trends and investment opportunities in Nairobi's commercial property sector.