What Does "With Warranty Covenants" Mean on a Deed?

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When you close a real estate transaction, the contract of sale expires and the deed becomes the controlling document. The deed transfers legal ownership of the property from the seller to the buyer, stands as proof that the buyer now owns the property and governs what will happen after the title changes hands. There are various types of real estate deeds, but the most common type, known as a warranty deed, usually contains six legally binding promises, or warranty covenants, regarding the title that is being transferred. Some states have combined or eliminated some of the warranty covenants, so there may be less than six in your jurisdiction.

What Is the Meaning of a Deed?

All transfers of real estate, whether a sale or a gift, must be accomplished by a deed. This document transfers the legal title from one party to another. For a deed to be legally operative, it must follow a few basic rules:

  • The deed must be in writing.
  • The deed must be executed, meaning it must describe the property, contain a statement that the grantor is transferring the property to the grantee, and be signed by the grantor.
  • The deed must be delivered. Most often, the grantor will deliver the deed by physically handing it to the grantee at closing. But it does not matter if there is a short delay in handing over the deed. As long as the grantor intends to be bound by the deed, there is a valid delivery.

It's worth clearing up a few terms at this point. As soon as the deed becomes the controlling document, the seller becomes the grantor and the buyer becomes the grantee. There is no magic to these terms; they simply denote that the seller is giving or granting the property and the buyer is receiving ownership of it.

Some deeds use more modern terminology: The transferor is the one who makes the transfer, instead of grantor, and the transferee is the one who receives the transfer, instead of grantee. Again, the exact terms do not matter. As long as it is clear who the parties are, you can define them any way you please.

What Are the Types of Deeds?

There are three main types of property deeds: The general warranty deed, the special warranty deed and the quitclaim deed. Some transactions require a special purpose deed, such as a tax deed when a property is sold for delinquent property taxes. Generally though, when you're buying or selling property, you'll be using one of the three main deed types. Before we go into detail about the warranty covenants included in a deed, let's take a look at how the three deeds compare.

General Warranty Deed: Full Protection

For grantees, the general warranty deed is the best type of deed to have. In this deed, the grantor promises that he has good title to the property with no defects and that he can transfer the property to the grantee with no restrictions.

In total, the grantor makes six promises about the quality of his title, which are known as the six express warranty covenants – a covenant being the legal word for a solemn promise. We'll take a closer look at how the six covenants work in a moment. The important thing about a general warranty deed is that it covers defects in the title that were created during the grantor's ownership and before. It's a warranty of good title since the beginning of time.

Read More: Differences Between a Warranty Deed & a Special Warranty Deed

Special Warranty Deed: Limited Protection

The special warranty deed contains exactly the same promises as a general warranty deed only this time, the promises relate solely to the grantor's period of ownership. In other words, the grantee would not have a claim against the grantor for any defects that were created before the grantor acquired the property.

Commercial property transactions often use the special warranty deed. You may also come across this type of deed if the property has defects regarding clear title, for example, a property with liens against it that is being sold to pay off debts.

Quitclaim Deed: No Protection

For the grantee, a quitclaim deed is the worst type of deed to have because the grantor does not promise anything. By signing a quitclaim the grantor is simply saying: "I transfer to you whatever interest I have in 17 Cherry Tree Lane." There is no promise that the grantor has good title to the property or even that he owns the property at all.

Because of these limitations, quitclaims are typically only used for intra-family transactions, such as adding a spouse to a property or dividing property after a divorce. A mortgage lender will not generally accept a quitclaim deed as collateral for a mortgage loan. So, if you are buying or selling residential property in the open market, the general warranty deed is the most common and preferred instrument used to transfer title.

Now that you understand what a deed is, let's look at the six most common warranty deed covenants of title.

Covenant One: Covenant of Seisin

Seisin is an old English word harking back to the feudal era. It refers to someone having legal ownership of real estate at a time when most land was owned by the British monarchy. By making the covenant of seisin, the grantor promises that he owns the property he is transferring.

If the grantee discovers that the grantor does not, in fact, own the property, then the grantor is said to have breached the covenant of seisin, and the grantee can make a legal claim against the grantor. The remedy here is almost always money. Since it's unlikely that the grantee will be able to acquire legal title from the person that does own the property, he will instead be entitled to receive financial compensation for his loss.

Generally, that means the grantor must return the purchase price and all associated fees and expenses. For example, if the grantee paid $100,000 for 10 acres of land, and the grantor didn't own any of those acres, then the grantee would get back the entire amount of $100,000. If the grantor actually owned nine of the acres, the grantee likely would get back a portion of the selling price as compensation for the one acre she does not receive.

Covenant Two: Covenant of Right to Convey

This covenant is exactly what is sounds like: The grantor promises the grantee that he has the right to convey the property to him. This covenant is very similar to the covenant of seisin and generally, each covenant acts as insurance for the other.

Sometimes, a person can own property, but does not have the legal authority to sell it, such as a life tenant who owns the property only during her lifetime. Conversely, a grantor may have the right to convey but not seisin, such as when the grantor is acting as an agent for the owner, but doesn't actually himself have an ownership interest in the property. Both covenants are contained in the warranty deed.

Covenant Three: Covenant of No Encumbrances

An encumbrance is a right, interest or restriction on a property that diminishes its value. Common examples include mortgages, liens and easements such as a right of way across the land.

Under this covenant, the grantor promises that there are no encumbrances on the property. If there are encumbrances, then the grantee is once again entitled to money – generally this will be the difference between the price she paid for the property and the lower value of the property with the encumbrance in place. For example, if the grantee paid $500,000 for the property, and it turns out there is a lien against it that will cost $50,000 to pay off, the grantee can sue the grantor for $50,000.

These covenants of seisin, right to convey and no encumbrances are called present covenants because they are promises about the present state of the title; they are breached only if the covenants are untrue at the time the deed was delivered to the buyer. If the covenants are not breached as of the date of the deed, they are never considered breached.

Covenant Four: Covenant of Warranty of Title

The remaining three covenants are known as future covenants. They kick in only if someone comes along after the grantee has taken ownership and asserts some kind of right or interest in the property.

Suppose, for example, that 12 months after closing the transaction someone comes along and claims they have a legal right of way over the property. The grantor did not know about the right of way and could not possibly have known that someone would come along and claim that right when he signed over the deed. Nonetheless, by virtue of the three future covenants, he still has to take care of the problem.

The covenant of warranty means that if anyone claims an interest in the property, then the grantor will jump in and defend the legal claim. If the value of the property is reduced as a result of the defect, or the grantee ends up paying out any money to settle the claim, then the grantor must compensate the grantee for any loss.

Covenant Five: Covenant of Quiet Enjoyment

The word quiet in this context does not refer to noise levels, but to the grantee's right to hold the property without suffering the consequences of a defective title. The grantee can quietly enjoy his property without fear of anyone coming along and saying, "Hey, you don't own this property, I do!"

This covenant is virtually identical to the covenant of warranty, and the two are often wrapped up together in general warranty deeds.

Covenant Six: Covenant of Further Assurances

By the covenant of further assurances, the grantor promises that if any problem comes up with the title in the future, he will take care of it. In other words, the grantor agrees to take whatever action is necessary to ensure the grantee gets good and marketable title.

For example, if the deed was not properly notarized, the grantor would execute and deliver a new deed. If a defect turns up from years ago, the grantor may have to hire attorneys and pay fees to clear the title.

Now, there will be situations when the grantor does not have the power to fix a title defect. If it turns out that someone quitclaimed the land years ago, but they did not own it, then the grantor may not be able to get the deeds he needs to fix the title. In this scenario, a court would generally award damages to the grantee, up to the purchase price, representing the reduction in value of the home.

No Title Is Perfect

Few properties have a perfect title with zero encumbrances, and a grantor will hardly ever give the six warranty covenants without some kind of caveat. Often, the deed will reference all the specific encumbrances that the grantor knows about because they've turned up on a title search. If the grantee agrees to take the property with all the named defects in place, she cannot sue the grantor for their existence.

Generally though, it's title insurance that soothes the pain of title defects. Title insurance pays out if unidentified encumbrances show up or if someone claims ownership of the property. For the grantor, title insurance provides financial safety in the event that a title defect is present. It means the property will not come back to haunt him many months or years after he sells it. For the grantee, having a title insurance policy means there's a guaranteed source of cash that can be used to clear up trouble if the title turns out to be defective. The grantee does not have to worry about the grantor disappearing, dying or going bankrupt, and thus being unable to pay damages if things go wrong. Purchasing title insurance is a mandatory part of the mortgage process for this reason.

Tips

  • There are typically up to six warranty deed covenants that represent the specific promises the seller makes to the buyer about the title of a property. State laws may differ in how deeds are created and what covenants are to be included in them.