A warranty deed and a deed of trust are two separate documents that are used in the transfer, mortgaging and ownership of real property, such as land, houses or buildings. A warranty deed transfers property between a grantor (the seller) and a grantee (the purchaser). A deed of trust transfers the legal title of a property to a third-party trustee, who holds the title until the terms of the contract are fulfilled, when the borrower repays the lender in full.
Warranty deeds and deeds of trust are both used in real estate transactions. The primary difference between the two is that a warranty deed is between a grantor and a grantee, while a trust deed also involves a neutral third-party trustee.
Defining a Warranty Deed
A warranty deed is the seller’s certification that the title to the real property is free of anything that would keep the sale from being completed and would prevent anyone or entity from coming back at a later time to claim ownership. As its name implies, a warranty deed "warrants" certain provisions. The grantor warrants that as the legal owner of the property, he can legally transfer the title; the grantor warrants that there are no legal encumbrances to transferring the title such as no liens; and the grantor warrants there are no third-party claims to the title.
Types of Warranty Deeds
There are two major types of warranty deeds: general and special. A general warranty deed, the most common warranty deed, is the best protection for a buyer because this warranty deed protects the buyer from any and all future claims. A special warranty deed only protects the buyer from claims arising from the seller or any representative of the seller.
Exploring a Deed of Trust
A deed of trust, also called a trust deed or trustee deed, is used in some states to ensure that you will repay your mortgage loan. When you obtain the mortgage to buy your property, your lender will receive a deed of trust. This deed effectively transfers the title of your property to the lender until the loan is paid. A deed of trust also gives the lender the right to sell your property if you stop paying for it. An escrow or title company may also hold a deed of trust until the loan is paid in full.
Evaluating Deed Requirements
In order to be enforceable, a deed should be in writing, should name the parties to the deed, provide the property’s legal description and should name specifically the legal right that is being conveyed through the deed. A deed must also include consideration, which is something of value to be exchanged, such as money and property. Finally, the deed must be signed by the grantor, or the person giving the ownership, and witnessed by two people.
Depending on the state, a sale of property that involves a mortgage used to purchase the property would include both a warranty deed and a deed of trust, the warranty for the buyer and the deed of trust for the lender.
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