The Title About Title Companies

When we work with buyers, we recommend to them that they ask for a general warranty deed to protect their home purchase.

Occasionally sellers (especially banks and the REO properties that they own) are not willing to provide a general warranty deed. They are only willing to provide a special warranty deed. And they also want you to use the seller’s title company.

Yes, legally you have the option to use any title company you like. But is it really that big of a deal? The above situation is one of the reasons you want to hire a title company that will work for you. Let me explain with the help of my friend Michele Freemyers.

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In a general warranty deed, the Seller gives the Buyer six different types of warranty on the title of their house. Basically the Seller warrants that their title is clean and also warrants that every owner back in the chain of title had clear and clean title and the Seller will “warrant and defend” any title claims that the Buyer may sue them for.

In a special warranty deed the Seller gives the Buyer only three types of warranty’s on the house – basically that the current Seller is the owner and will only warrant their particular TIME of ownership They won’t give any promises about anyone else’s term of ownership back in the chain of title.

In case of a defect of title, the Buyer can actually SUE the Seller and make them enforce the warranties that were within the deed.  Since more is always better, you always want a general warranty deed for your Buyers.  The banks (and builders) will only give Special Warranty Deeds, because they do not want the added liability of the other three warranties. 

Therefore it is important where you close because when purchasing from a Bank/REO Seller, that company is usually ONLY doing a “current owner” search (of course they don’t advertise that!)– which means a title search on the bank and the person that was foreclosed upon.  So… if you follow the logic, they are giving you a special warranty deed AND only doing a current owner search. 

Your Buyer in that case has two major problems:

1. There is no warranty within the deed that will cover the Buyer in case there is a problem back in the chain of title – so your Buyer can’t go back and sue the Seller for title defects that appear prior to the Bank’s ownership because they only provided a special warranty deed   AND

2. You don’t know the state of the REAL title because there was only a one owner search done. 

You are not coming to EKKO Title for me to make them give the Buyer a General Warranty Deed – they will not do that and no amount of effort on my part will make them change their position on that.  The Buyer will still get a Special Warranty Deed, but the standard practice in my office is that we run a full 60 year search.  That way, when the Buyer only gets the special warranty deed, we KNOW what the title shows for the full 60 years and will give the Buyer title insurance on the full 60 year search.  If there are title defects, I will tell you (the Seller’s attorney has fiduciary duties to the Seller – NOT to your Buyer – so they are under NO OBLIGATION to disclose this information to you) and the Buyer will be advised of the real status of the title to their most expensive asset.

Ok so you still run the 60 year search if only representing the buyer?

We pull the title work and run the 60 year search, and the Buyer pays for that service.  If we find any problems, we MAKE the Seller clear the title problems.  From the processing perspective, we literally force the Seller to clear any title problems.

Thanks, Michele, for looking out for your clients and explaining another important part of purchasing a home!