A real estate sale in Texas commonly involves three documents: a deed, promissory note and deed of trust. The deed is the document used to convey title to the property from seller to buyer. Texas law recognizes different types of deeds, one of which is a special warranty deed. The promissory note and deed of trust are used to secure repayment of any loan used by the buyer as part of the purchase price.
Texas Warranty Deeds
In Texas, a warranty deed is used to convey ownership of land with both express and implied warranties regarding the condition of title to the land. The warranties are covenants given by the seller (usually called the "grantor") to the buyer (usually called the "grantee"). Texas Property Code Section 5.023 specifies the implied covenants as: (a) the grantor has not conveyed the property to anyone else, and (b) the property is free from encumbrances. The express warranties are determined from the language used in the deed. When a general warranty deed is used to convey property, the seller is expressly warranting to the buyer the entire chain of title against defects, even those that occurred prior to the seller's ownership.
Special Warranty Deed
A special warranty deed includes the implied warranties in Texas Code Section 5.023, but the language of the special warranty deed limits these warranties to the period of time the property is owned by the seller. For example, a seller who fails to disclose a lien for unpaid taxes that he caused to be placed on the property has breached the warranty of title and is liable to the buyer to rectify this defect in title. However, if this defect predates the seller's ownership of the property, the buyer has no recourse against the seller. For this reason, sellers generally prefer using a special warranty deed to convey the property, while buyers prefer receiving a general warranty deed.
Deed of Trust
When purchasing real estate requires a loan, Texas law provides for the use of a deed of trust to secure repayment of the loan. To be valid, the trust deed must have three parties: the trustor (buyer/owner of the property), beneficiary (lender) and trustee. Although most deeds of trust are used in conjunction with a property sale, any monetary obligation can be secured by using a deed of trust.
Deeds of trust differ from other real estate documents by requiring a third party, the trustee, who is not otherwise involved in the transaction. The trustee often does nothing more than hold legal title to the property and is not responsible for any other obligations relating to the property or the transaction underlying the deed of trust. If the trustor repays the loan securing the deed of trust, the trustee simply reconveys legal title to the property back to the trustor.
A trustee is called upon only to act the trustor defaults in his obligations under the promissory note secured by the deed of trust, usually the result of not making the requirement loan payments to the lender. If the trustor fails to cure the default, the beneficiary has the option of instructing the trustee to conduct a nonjudicial foreclosure of the property--that is, sell the property at public auction, without court action, to satisfy the loan. The trustee has the right sell the property this way under the "power of sale" provision in the deed of trust. Beneficiaries prefer the remedy of nonjudicial foreclosure is because it is quicker and far less expensive than foreclosing by filing a lawsuit.