Is Special Warranty Deed a Common Practice for Apartment deals?

Question

Is Special Warranty Deed a common practice for multi family apartment deals? That's what the listing broker told me and said I can ask for General Warranty Deed instead but that would put me at disadvantage against other buyers' offer.

Is it really common/acceptable for apartment or commercial deals? I understand the difference between the Special vs General, so obviously general is preferred. but in order to get the deal, is that an acceptable risk? How does the title insurance work in this case then? Would they still do overall title search to identify any issue before current owner even though the owner don't warrant it? And would it increase financing difficulty as lender would probably prefer general deed instead as well

TIA for sharing your knowledge/experience on this

Greg H. · Answer

As long as you get title insurance, I would never sweat the difference

Russell Brazil · Answer

The type of deed used is highly regional.  Some people it blows their mind to find that in some parts of the country you will only get a quit claim deed.

A quick google search and I found that in Texas on commercial properties, special warranty deeds are what are commonly used.

http://www.lonestarlandlaw.com/deeds_in_texas.html

Brandon Yuan · Answer

Thanks Tom for your clarification! that's very simple yet helpful! that was one of my main concern because I guess I didn't understand how title policy works in such case. now it makes sense.

I actually just got a response from the title company that worked on my previous commercial deal as below and that clarified and echoed what you just said:

"Yes, it is common practice to convey by Special Warranty Deed with commercial properties.  Title insurance is still the same and we cover you fully.  The only type of Deed we do not recognize in Texas is a Quit Claim Deed."

Brandon Yuan · Answer

Thanks @Joel Owens. now it's coming back to me. I did review schedule B exception of title  with my attorney in my last commercial deal (although it was general warranty deed). there were like almost 3 pages listed in schedule B on that one. although I don't quite remember what were the rationales my attorney explained, I do remember the conversation went fairly smooth basically being told those were all fairly standard and common exceptions he expected and nothing to concern with...

the broker did say I can ask for general, but I'll get countered 100% with special by seller. I'm in a potentially multi offers situation (duh), so it'll put me disadvantage among other offers if I insisted.

Tom Gimer · Answer

The title policy's coverage should be no different when a general warranty vs. special warranty vs. quitclaim deed is used to transfer title. The use of a particular type of deed typically raises concerns for a buyer because of what a prior owner is guaranteeing or agreeing to assist with or not, but like Greg said, if you have a title insurer willing to insure yours it's because they've done their research. We provide title insurance all the time in connection with transfers such as foreclosures where the sellers refuse to give any warranties at all or distress sales where any warranties would be worthless.

For those who choose to buy property without purchasing owners title insurance, the type of deed used and the ability of the person making any warranties to back them up is a huge factor in the safety of your investment.

Greg H. · Answer

I just went through the last several policies I have received just to make sure are no Schedule B exceptions.  Not sure if that is for Texas or not since 90+% of the properties I buy are Hud/Va/Fnma/Banked owned and are all Special Warranty Deeds.  I usually run into to problems with USDA which insists on a Deed Without Warranty which is an issue in Texas

Joel Owens · Answer

Brandon special warranty deed usually just means the owner warrants the property from the time they own it. In addition to that there are other reps and warranties in the purchase and sale.

With title there are schedule B exceptions. Your attorney reviews those and makes comments. Usually in a regular contract the seller covers a basic title policy for the buyer but special endorsements added to the policy are the expense of the buyer.

Anything is pretty much negotiable. If there are tons of offers on a well priced property then you likely have little to no leverage. Current owner does not want to be responsible for things in the past they do not know of.

No legal advice given.

Greg H. · Answer

No exclusions on a title policy with a special warranty deed.  These days it is fairly common practice and when purchasing from an institution it will be the norm

Brandon Yuan · Answer

yes seller will pay for title insurance. But wouldn't title company make exclusions in their title insurance policy if there is indeed any issue prior to current owner? I'm not quite sure how title policy works in a special warranty deed scenario, or is it the same regardless special or general deed and that'd mitigate the special warranty deed's risk? thanks

Brandon Yuan · Answer

yes I should've mentioned specifically for Texas. i read the article now thanks for sharing

Is Special Warranty Deed a Common Practice for Apartment deals?

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