Special Warranty Deed

[J Scott]

A friend of mine is buying a house next week, and when he looked at the settlement package, he noticed that he's getting a special warranty deed (SWD) instead of a general warranty deed (GWD). I know the difference between the two, but I'm trying to figure out what exactly might be prompting the seller to transfer with a SWD instead of the standard GWD? My friend has asked the attorney handling the settlement, but the attorney represents the seller, so I'm not convinced my friend will get an honest answer.

Here are the two potential reasons I'm thinking:

1. The seller doesn't have title insurance from when he bought, and doing this would eliminate any future exposure the seller might have to claims prior to his ownership. I assume this is why banks sell foreclosures using SWD -- it eliminates their need to purchase title insurance during their short hold period.

2. I'm wondering if the closing attorney or title company may get a kickback by transferring using a SWD, since that would essentially eliminate the exposure to the seller's title policy.

#1 seems like a reasonable reason to do this, and I assume my friend's title insurance would protect him should any claims/issues arise.

I'm not sure if my assumption about #2 (the old title company paying to have the old title insurance "closed out" is something that really happens or not, which is why I'm asking this question. If that's the case, my friend would demand a GWD.

Does anyone know if #2 really happens?

Does anyone have any other ideas on why a seller might choose to convey using a SWD?

Lastly, any recommendations on how hard my friend should push back on this or any other questions he should be asking to ensure that any risk is mitigated? I realize it's easy to say, "He should just get title insurance and he'll be protected," (which I agree with), but I'm also trying to get a better legally understanding of the situation as well.

@Bill Gulley - Would love your take on this!

[Bill Gulley]

Hey, thanks man, LOL

#1 is very possible, #2 I don't see that as a reason.

Watch out thinking you're protected with title insurance, look to Schedule BII for exceptions as they may insure title as granted which may not cover underlying issues but only to those interests granted.

J. if I were you I'd call that attorney explaining you (as an agent) are advising your client and need to know what's up. Need be, draft a consultation agreement for $5, POC you don't have to be on the contract to advise.

Sounds to me like a relative might have been left out or possible liens could be pending but not shown of record yet. Individuals generally don't convey by SWD unless some matter is excepted out in that deed.

If it's just a SWD without listed exceptions sounds too like the attorney is venturing off to where he thinks he's simply protecting his client. I would not allow him to go there. If the seller didn't obtain title coverage, it's not to late, he can probably get a policy off the same search that will be done for your friend. It might be cheaper than arguing and paying the attorney additional fees, holding up settlement and fighting over it.

I'll bet the contract and norm is to transfer marketable title, insured title, unless stipulated in the contract, if this is a last minute issue I'd guess it's just the attorney, seeing if he can get away with it in representing his client.

There is also another issue so far as financing, if your friend is obtaining a loan the lender will require a GWD being insurable as well, exceptions are made for institutional lenders selling as the property is sold by a corporate body arising out of a foreclosure, a different issue than buying from an individual.

Make it a lending requirement for settlement and that SWD may go away.

But, ask, are there any exceptions being made and why? If title insurance covers the deed exceptions then there may not be an issue, but I'd not go there, IMO. If that individual seller is no longer responsible for some future issue then it may be hard to motivate them if needed to cure any issue. :)