What Is a Grant Deed? Should You Buy Property Using a Grant Deed?

If you are transferring or acquiring property, understanding deeds is important. hafakot/Shutterstock

Transferring title rights in a real estate transaction is vital. If you don’t use the right documentation, it can leave you in a vulnerable and financially difficult situation. If you are transferring or acquiring property, understanding deeds is important.

A grant deed is sometimes used in real estate transactions. But is it the best type of deed to use? Will you have a clear title to the property with it?

Grant Deeds Offer Limited Warranty

A grant deed is known as a special or limited warranty deed. It’s a legal document that transfers real estate between the grantor (previous owner) and the grantee (the new owner).

The grant deed warrants that the grantor hasn’t transferred the property to anyone else and that the property wasn’t encumbered when the grantor held the title, except where noted on the deed.

However, the grantor doesn’t guarantee against any title defects that may have existed before they bought or took possession of the property. In other words, a grant deed doesn’t offer a guarantee or promise of protection when transferring ownership. A grant deed only means that the property has not been sold or transferred to anyone else. that no title claims existed while the seller owned the property, and that no encumbrances such as mortgages or pending property taxes occurred during the previous ownership.

Note that these only mean under the prior ownership or person selling you the property. However, it could mean that the grantee or the new property owner may have to resolve any outstanding issues from before the grantor’s ownership. This could be liens, zoning issues, or property claims. The grantee may incur additional costs or lengthy legal battles.

Grant deeds provide a level of protection between quitclaims and warranty deeds.

Quitclaim Deeds Offers No Protection

Quitclaim deeds are generally used in transfers between family members. They can also be used in or out of the grantor’s trust or business as well as to correct an error in a warranty deed. However, with a quitclaim deed, the transferee has no protection, so the property may not be clear of restrictions.

The transfer in a quitclaim deed may neglect to disclose critical information, and the grantor is not responsible for any damages resulting from the lack of disclosures.

Warranty Deed Has Protections

A warranty deed, or special warranty deed, promises more protection to the buyer. With a warranty deed, the grantor or seller guarantees that they have a defensible ownership interest in the property. The grantor guarantees there are no title claims, encumbrances, or other claims on the property from them or the previous owner.

If a grantor misrepresents their ownership, they can be sued.

Because the grantor is guaranteeing ownership through a warranty deed, it provides the grantee more peace of mind. The result is that most typical real estate transactions often use warranty deeds.

When Is a Grant Deed Used?

Grant deeds are used depending on the type of transfer. For example, grant deeds are frequently used with tax and foreclosure sales.

Other reasons they may be used are to add or remove a person’s name to a title, transfer ownership of the property to a trust, or transfer ownership of property from a business entity to an individual or vice versa.

Divorcing couples may also use a grant deed. This is called an interspousal transfer and is used to transfer property from one spouse to another.

What Does a Grant Deed Contain?

The exact specifications and format of a grant deed depends on state laws. But here are some essential items grant deeds must contain:

• the date
• complete names of the grantor and grantee
• description of the property
• granting clause: the “bargain, sell or convey” clause is used as one that warrants the grantor has the right to sell the property, and the wording is subject to local statutes
• consideration: details about the value exchange, monetary payment, or some other valuable exchange
• signature of grantor
• signature of witnesses or a notary public acknowledgment: notarization requirements vary by state

Besides the above contents, a grant deed must include a statement stating what warranties or assurances are included.

Pros and Cons of a Grant Deed

There are several pros to using a grant deed. They include clear transfer of ownership because the grantor is transferring full ownership to the grantee; basic warranties because the grantor guaranteed they have legal ownership and haven’t previously transferred the title to another party—it also assures that they have not created any liens or encumbrance; and cost-effectiveness and affordability in certain situations.

But there is a con to using a grant deed that is important to consider.

There is limited protection. The grantor is warranting they haven’t transferred the title to another person or have encumbrances. However, they are not warranting that there is not a title or encumbrance from the grantor’s previous owner. This could result in future legal problems for the grantee.

Because there are no guarantees that the property is free and clear, buyers may want to purchase title insurance when using a grant deed, which is an added expense. It’s also wise to consult a real estate attorney to understand the implications of using a grant deed.

Be Cautious When Using a Grant Deed

Although there are some benefits to using a grant deed, there is a risk that a third party may claim ownership in the future. In some situations, a grant deed makes sense, but you should consider a warranty deed when you can.

It’s also advisable to consult with a real estate attorney.

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