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What Is Warranty Of Title & Types Of Protection It Provides?

What is Warranty of Title & What Kind Of Protection Does It Provides?

Amanda Byford
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About Warranty of Title

When you are buying or selling a property, the title of the property plays a significant role in the transaction. 

The title of the property is used to determine the rightful owner of the property and ensure there are no encumbrances. 

One such important term related to title is title warranty. In this post, we will understand what is a warranty of title and its importance in detail.

What Is Warranty Of Title?

Before we dive deep into this topic let us first understand the difference between a warranty deed and a warranty title. 

A warranty deed is a legal document used to transfer the title or the property from one owner to another in a real estate transaction. 

It is a document in which the ownership of the property is recorded legally.

Warranty of title is an assurance by the seller that he can legally sell the property and that there are no liens or legal claims on the property. 

The party holding the lien on the property has a portion of the property under a legal claim for the amount that is owed by the homeowner. 

The most common types of liens are tax liens, mechanical liens, or mortgage liens

The property receives a clear title state where there are no liens on the property. Usually, the title company is responsible to search the title for any claims or liens and report if the title is clear for the property.

Title warranty is not provided in other types of deeds like a quitclaim deed. In a quitclaim deed, there is no guarantee of clear title, but the grantor effectively waives his interest in the property. 

If a title issue arises later, the buyer will not have the protection that a title warranty would provide.

How A Transaction Is Confirmed Using Warranty Of Title?

A title warranty is automatic in most property sale transactions, but if the seller is acting as an agent, no title warranty may exist. 

This case may occur in a situation where the auction is taking place for example, in a real estate sale. 

In such cases, the seller of the property is not the owner, so he may not be aware of another party’s rights on the property. 

A title warranty can give the buyer of the property legal rights to sue the seller if there are any claims or problems with the title of the property. 

For example, an heir of a previous owner may have an outstanding claim on the property that is not reported by the seller. 

The buyer can take legal action to recover the money he invested in the property purchase and the damages caused to rectify the issue. 

Other risks of completing a transaction may include ongoing disputes over the scope of defining the property boundaries. 

Adjacent property owners may say that the property line is different from what the seller presented to the buyer. Bills for unpaid invoices and taxes may exist, making the transaction difficult.

 If the property in question doesn’t have any outstanding liens and the ownership of the property is established successfully, the property will receive a clear title, and the seller can then provide a warranty of title to the buyer without any impediment.

What Kind Of Protection Does Warranty Of Title Provide?

A title warranty protects against risks that would make the property less valuable to the buyer. 

Common title risks are as follows: 

  1. Any disputes regarding boundary lines or survey changes related to property.
  2. Liens on the property such as unpaid property taxes or federal taxes by the seller or the previous owners of the property.
  3. Any undisclosed prior transfer of ownership to third parties.
  4. Issues of probate or unsettled inheritance from deceased homeowners.
  5. Any restrictions on the seller’s right to transfer property.
  6. Any unreported mortgage loan on the property.

If a property has any of the above-mentioned attributes, the property will not receive a clear title during the title search. 

An unclear title can require an expensive legal process to rectify the issue. These added costs may drop the value of the property and make it difficult to sell. 

A title warranty protects against these risks by ensuring that the seller has a clear title and by giving the buyer the right to sue the seller if there are any of the above-mentioned issues with the title.

Conclusion

Warranty of title not only protects the buyer from any title issues but also helps the seller to have peace of mind and confidence that the transaction will go smoothly. 

As a seller, it is suggested that you speak to your title company to make sure that the title of the property that you are selling is clear.

Amanda Byford

Amanda Byford has bought and sold many houses in the past fifteen years and is actively managing an income property portfolio consisting of multi-family properties. During the buying and selling of these properties, she has gone through several different mortgage loan transactions. This experience and knowledge have helped her develop an avenue to guide consumers to their best available option by comparing lenders through the Compare Closing business.

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