An Arizona Real Estate Special Warranty Deed Limits Sellers Liability

A man bought a home in Chandler from a bank after the bank acquired the home at a foreclosure sale. The new homeowner received a special warranty deed from the bank. Not knowing what the special warranty deed was, he assumed it was the standard deed for homes. However, his neighbor received a general warranty deed when he bought his home last year. The homeowner is unfamiliar with Arizona real estate law and is wondering why they have different deeds in the same Chandler subdivision?

Under a general warranty deed the seller warrants that the title being transferred to the buyer is valid and free of any title defects back to the beginning of time. A special warranty deed warrants title only for the time period in which the seller owned the real property. For example, if there was a title defect before the bank acquired the home at the foreclosure sale, the bank would not have liability to the buyer under a special warranty deed but would have liability to the buyer under a general warranty deed. Therefore, in order to limit liability a bank that acquires any real property at a foreclosure sale typically furnishes only a special warranty deed to the buyer. The distinction between a general warranty deed and a special warranty deed is generally immaterial if the buyer has adequate title insurance. In other words, if a special warranty deed is furnished, but there is title insurance available to cover any defect in title, the buyer should be able to recover damages from the title insurance company for most defects in title, including those defects in title that occurred prior to the seller acquiring the real property.

Note: The standard Arizona residential contract provides for a general warranty deed from the seller. In most commercial transactions, however, the seller only executes a special warranty deed. clgz05