When you purchase a home, you’ll receive a deed to the property. This deed shows that the home has been conveyed from the seller to the buyer, who now officially owns the property. While warranty deeds pledge that there are no outstanding ownership claims on the home, they do not guarantee that an issue such as a valid lien will not be uncovered later.
“Free and Clear”
A warranty deed essentially verifies that the seller owns the property "free and clear" at the time of conveyance. This means that no other parties can make an ownership claim to the home. A “free and clear” title does not have interests attached, such as liens for unpaid mortgages, unpaid taxes, outstanding construction bills, or other debts for which a creditor may have legally filed a lien against the property. The general warranty deed also asserts that there are no known encumbrances, such as easements or encroachments that may restrict the use of the property.
Existing Liens on a Warranty Deed
Even if you receive a warranty deed, there is no guarantee that an ownership issue will not crop up at some point in the future. As property changes ownership, issues such as liens, easements and encroachments follow the property. Some of those interests may be difficult to find, since public records are filed in many different ways. It’s also possible that the issue may be a result of fraud or misfiling, which can be tough to identify. A warranty deed does not guarantee that a lien will never be discovered -- or that it won't be upheld -- but promises that the seller will settle it if it is.
Warranty deeds can be backed up by title insurance, which is a policy protecting the title of the property. Title insurance is different than most traditional insurance models because it protects against issues in the past. When you receive your title insurance policy, this means that a title company has researched the property to determine whether there are existing interests or encumbrances. The title company then issues a policy protecting the new owners against title issues that are not named as exclusions in the policy. Sellers often purchase a policy for the new owners as a gesture of good faith.
While your warranty deed and your title insurance policy give you some protection against property liens from the past, they do not offer any kind of protection for future issues. This means that you would be responsible for any liens placed on your property for your own unpaid debts. For instance, if you failed to pay your property taxes and received a subsequent tax lien, your warranty deed would offer you no protection. You would need to pay the taxes and remove the lien before you could offer a warranty deed to a new buyer.
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