A warranty of title ensures the current owner (known as the “grantor”) has the legal ability to transfer the ownership rights of real property. The majority of real estate transactions require a warranty of title before a transaction can occur to guarantee protection to the new owner (known as the “grantee”).
What is a Warranty of Title?
A warranty of title promises that no other entities have any legal claims on the property in the form of liens. This is referred to as a “clear title” and is generally required before a sale can be made.
The grantor, in most cases, must pay off any outstanding liens before transferring ownership through a sale. If there are any liens imposed on the property, a warranty of title cannot be executed. The most common type of liens includes tax liens, mechanical liens, and mortgage liens.
The grantee would be able to take legal action against the grantor if a lien was imposed when transferring the property.
What Does the Warranty of Title Protect Against?
A warranty of title can protect against other risks that make the property less valuable, such as:
- Property line disputes. Conflict of the boundary lines or survey discrepancies.
- Unresolved probate issues. Inheritance or challenges of a will.
- Unknown mortgages. Additional mortgages taken out on the property that have not been disclosed.
This list is not exhaustive and there could be other legal restrictions on the grantor’s right to transfer the property to the grantee.
Providing a Warranty of Title
A warranty of title is provided in addition to a warranty deed when conducting real estate transactions. A warranty deed is a physical document that promises a clear title to the property.
Since the grantor is the one getting compensated for the transfer of property, the warranty of title is traditionally provided by them.
Does the Seller Have to Provide a Warranty of Title?
Yes, in formal arrangements the grantor has to provide a warranty of title. This is required when a warranty deed is used to guarantee ownership rights to the grantee.
What if the Seller Cannot Provide a Warranty of Title?
If the grantor cannot provide a warranty of title, then the real estate transaction usually cannot take place. Many lenders will not lend money on a property without a clear title, and most grantees would not continue with this purchase even if financing is not involved.
At this point, there are two options to complete the deal:
- The grantor must first handle the lien and ensure a clean title
- A different deed, such as a quitclaim deed, must be used.
When is a Warranty of Title Not Used in a Property Transfer?
A warranty of title is not used in a property transfer that utilizes deeds other than a warranty deed. Examples where a warranty of title is not used include:
- Quitclaim deeds. Used among family or close friends.
- Life estate deeds. Become effective once a person passes away.
- Sheriff’s deeds. A sheriff’s sale in which foreclosed property is auctioned off by court-order.
These types of deeds do not require a clean title and may be more efficient in transferring property rights.