Special Warranty Deed
A special warranty deed will allow for recourse against the seller (grantor) if any issues (encumbrances or challenges to title) come after the transfer of the property to the buyer (grantee) that were created during the time that the seller owned the property. The special warranty deed will not protect the grantee against any issues or challenges to title that come up from the period prior to the seller’s ownership.
Putting ‘Special Warranty Deed’ in Context
Case Study: Oak Ridge Office Park Acquisition
Triangle Property Partners, a real estate investment firm based in Raleigh, North Carolina, recently acquired Oak Ridge Office Park, a stabilized suburban office property. The property, built in 2008, consists of 75,000 square feet of rentable space and is currently 92% leased to a mix of professional services tenants.
The firm acquired the property for $18.5 million, with plans to hold it as a long-term core investment. As part of the transaction, the seller transferred ownership to Triangle Property Partners using a special warranty deed. This deed provided assurances that no encumbrances or title challenges arose during the seller’s ownership period. However, the special warranty deed did not protect the buyer against title issues predating the seller’s acquisition.
Implications of the Special Warranty Deed
To mitigate the risk of any pre-existing title issues, Triangle Property Partners conducted a detailed title search before closing. Additionally, they purchased title insurance to ensure protection against any unforeseen claims arising from the time before the seller’s ownership.
This approach reflects a standard best practice in commercial real estate transactions, where due diligence and title insurance complement the limited protections of a special warranty deed.
Key Takeaway
In commercial real estate, a special warranty deed provides buyers with a moderate level of protection, covering only the grantor’s period of ownership. Buyers must conduct thorough title reviews and consider title insurance to safeguard their investment against earlier claims or encumbrances.
Frequently Asked Questions about Special Warranty Deeds
What is a special warranty deed?
A special warranty deed provides recourse against the seller if title issues or encumbrances arise that were created during the seller’s period of ownership. It does not cover any issues prior to the seller’s ownership.
How does a special warranty deed differ from a general warranty deed?
A general warranty deed covers all title issues, regardless of when they occurred, while a special warranty deed only covers issues during the seller’s ownership.
Why did Triangle Property Partners accept a special warranty deed?
In the Oak Ridge Office Park acquisition, the seller used a special warranty deed. Triangle Property Partners mitigated the risk by conducting a thorough title search and purchasing title insurance.
What risks does a special warranty deed leave with the buyer?
It does not protect the buyer against title issues or claims that occurred before the seller’s ownership. The buyer assumes those risks unless mitigated through due diligence and title insurance.
What is a best practice when accepting a special warranty deed?
Best practice includes performing a detailed title review and securing title insurance to protect against pre-existing claims or encumbrances not covered by the deed.
Is a special warranty deed common in commercial real estate?
Yes, it is commonly used in commercial real estate transactions as it strikes a balance between protection and risk allocation, with buyers expected to perform independent due diligence.
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