Question: Two years ago we bought a home in Laveen as an investment. We received a special warranty deed from the seller. We are now selling the Laveen home, and the title company is demanding that we sign a general warranty deed because the title company wants “more protection.” What is “more protection?”
Answer: You first have to understand the difference between a general warranty deed and a special warranty deed. With a general warranty deed, the seller warrants good title to the home from the beginning of time. With a special warranty deed, however, the seller only warrants good title to the home since the seller acquired the home. For example, assume that twenty years ago, a “seller” had given the buyer a fraudulent deed to the home, i.e., on the deed the “seller” had forged the name of the actual owner of the Laveen home. That buyer then sold the home to another buyer, who then sold the home to you.
If you sign a general warranty deed now to a buyer of your Laveen home, and your buyer later loses title to the home because of that forged deed from twenty years ago, you could be sued by your buyer because you warranted good title from the beginning of time, i.e., no forged deeds in the “chain of title.” On the other hand, if you sign a special warranty deed to a buyer of your Laveen home, you would have no liability to your buyer because you warranted good title only for the period that you owned the home.
Even if you sign a general warranty deed now to your buyer you should have no liability to your buyer if you have title insurance, and if you had no knowledge of the earlier forged deed.
(1) Special warranty deeds used to be the standard deed in a transaction. With the flood of “flippers” and “wholesalers” and the “crazy” transactions in the Phoenix area in the last few years, some title companies are now requiring general warranty deeds.
(2) Title insurance companies are the “Supreme Court of Arizona Real Estate Law.” Buyers and lenders need title insurance. Therefore, no matter what lawyers and even judges say, if no title insurance company will insure it, the sale or the loan is dead! There are approximately 50 escrow companies in Arizona but only four or five national title insurance companies, including First American, Fidelity, and Stewart Title.
Note: Chadwick Campbell, Senior Counsel & Underwriter for Thomas Title & Escrow, assisted with this Q&A on warranty deeds.