Wednesday, May 29, 2013

General Warranty Deeds; What’s the big deal?

General Warranty Deeds; What’s the big deal?

By now, many of you have read and used the new Go Marketing Agreement. Surely, there are many thoughts running through your mind: Jim and Kevin are at it again; Does this thing work with zip forms? What the heck is a general warranty deed? While I will continue to let Kevin speak to the first two, I believe that I can drop some Go Professor knowledge on the last question.

There are three types of deeds in North Carolina: General Warranty, Special Warranty, and Non-warranty (quitclaim). The terms General versus Special refer to the nature of the warranty that is being provided by the Grantor (Seller). In a General Warranty Deed, the seller covenants (promises) with the buyer that he will defend the buyer against any third party claims on title. In other words, the seller has warranted that he has good title and the ability to convey the title. If this later turns out to be challenged by a third party, the seller will step in and defend the buyer’s title. Claims against title may be born of fraudulent conveyances in the past, spouses with marital rights arising to claim some share of the property, and mechanics’ liens (among others). Under the General Warranty Deed, the grantor agrees to defend grantee against all claims against title from all persons whomsoever regardless of from how far in the past the claim arises. The General Warranty Deed is the greatest assurance of title that a grantor can convey and is the standard for most residential contracts in NC.

By contrast, in a special warranty deed, the seller provides the same warranties but only from claims arising out of the seller’s ownership of the property. Conveyance by a special warranty deed is becoming a popular trend in some states and in some commercial transactions as it reduces the liability of the seller by limiting the warranty period to just the seller’s ownership.

A General Warranty Deed will continue to be the standard for residential sales, however, regardless of which deed type is used, a grantee (buyer) is best advised to also obtain a title insurance policy at closing. Title insurance will be invaluable as a protection against third party claims in the event the seller in deceased, unreachable, or insolvent.