Special Warranty Deed & Foreclosures, what to look for?

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Special Warranty Deed & Foreclosures, what to look for?

Xavier G.
Tomball, TX · Member since 2016 · 33 posts · 14 votes
I am looking at a property in Texas that is in Foreclosure from a reverse mortgage company. The previous owner was a hoarder and my research seems to show that he was foreclosed on because of past due taxes (on top of not taking care of the house and getting the HOA on his back). The reverse mortgage LLC will sell this house with a special Warranty Deed which only covers their period of ownership. I have read that this is common in the foreclosure world. The Company foreclosing also chooses the title company as is also usual in this situation (from what I understand). My question is, how do I cover myself? Would an owner title insurance be enough? I will be paying cash. Thank you in advance!
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Jessica Jay-Maleski
Real Estate Agent · Scottsdale, AZ · Member since 2016 · 114 posts · 42 votes
9y

@Xavier G. I hope you don't mind but I was just about to post a similar question and thought it would make more sense to add my question to yours.


I am looking at a property in AZ (to rehab and flip). The current owner is an investor who purchased the home in 2011. He is indicating that he will only provide a special warranty deed. This is something I have not encountered - is anyone able to provide some clarity for Xavier and me?

TY! :)

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  • Jessica Jay-Maleski
    Real Estate Agent · Scottsdale, AZ · Member since 2016 · 114 posts · 42 votes
    9y

    @Xavier G. I hope you don't mind but I was just about to post a similar question and thought it would make more sense to add my question to yours.


    I am looking at a property in AZ (to rehab and flip). The current owner is an investor who purchased the home in 2011. He is indicating that he will only provide a special warranty deed. This is something I have not encountered - is anyone able to provide some clarity for Xavier and me?

    TY! :)

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    9y

    Many foreclosing attorneys won't even give a special warranty deed, so you're doing just fine. All you care about on the title side is whether the title insurer will issue you an owners policy. Review specific exceptions to coverage. 

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    9y

    Special Warranty deed in fine in Texas. A deed without warranty or quit claim is a potential issue

    I have never had an issue close with their title company if they provide title insurance. Even if you decided to use your own title company,  the title insurance underwriter has a good chance to be the same anyway 

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  • Xavier G.
    OP
    Tomball, TX · Member since 2016 · 33 posts · 14 votes
    9y
    Mike Wright Tom Gimer @gregH, Thanks guys. I've done some more research, it seems that my only additional exposure with title insurance in a Special Warranty Deed vs a General Warranty Deed is that the title insurance won't cover an issue that was not present at the time the title insurance is issued (e.g. a mechanic's lien that would be put on the title way after the facts). The SWD would cover it if the issue originated while under the bank's ownership (even if the lien was placed after the sale) but not if it happened during the previous owner's time. And the General Warranty Deed would cover that situation, did I get all of that right?
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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    9y

    Don't confuse the seller's warranties with the insurance policy.

    With special warranty deed the seller is only certifying and agreeing to remedy things that occurred during their ownership (rather than the property's entire history).

    Title insurance, on the other hand, responds to defects in title not discovered through search/exam such as fraud, forgery, undisclosed heirs, etc. (or errors by the title examiner/title company).

    You wouldn't have title insurance coverage for mechanics liens under either scenario unless you purchase an enhanced owners policy (or paid an extra-hazardous risk premium). However, if the seller signed an affidavit stating they paid for all work on the property, and a contractor filed a lien, the seller would be obligated to pay that claim... not the title insurer.

    Anyway, you'll never get a general warranty deed in a foreclosure situation. The "seller" in these transactions knows very little about the property... and will often refuse to even execute an owners' affidavit.

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