Use of Deeds
Transfer of property title only occurs when a real estate seller physically transfers a deed to the buyer. Deeds are binding legal contracts. They typically replace or enlarge upon a previously executed real estate sale agreement. Deeds often contain any contract promises that the two parties make to each other. Inclusion of these promises in a valid deed renders the promises legally enforceable, meaning one party may sue the other if the other breaches his promise.
Warranty deeds provide more or less complete protection for the buyer if problems develop with the title to the property, even after the deed transfer has taken place. Warranty deeds contain two types of covenants, promises by the grantor (the party transferring the deed) that he is transferring good property title to the grantee. Should the seller then breach any of these covenants, the grantee can sue the grantor. Courts usually award the warranty deed grantee the difference between good title and the actual state of title of the property.
A warranty deed contains a covenant of seisin, the grantor's promise that he has title to the property, a covenant promising that the grantor has the right to legally convey the property, and a covenant that the grantor has not encumbered the property. Encumbrance is some transfer of partial or complete title to another party, such legal actions as mortgages, liens or easements typically constitute covenants. These three promises, in aggregate, are "present covenants."
In a warranty deed, the grantor also promises to take certain actions in the future that will protect the grantee's property title should it come under threat. The grantor promises to prevent other parties from interfering with the grantee's enjoyment of the property, the grantor guarantees that if any such party does interfere, the grantor will legally defend the grantee's claim and, in a broad covenant of "further assurances," the grantor promises to take any other action which proves necessary to repair or perfect the grantee's title. These three promises constitute "future covenants."
Grant deeds contain far fewer protections for the grantee. Although grant deeds vary widely by state (some states don't even use them), the typical grant deed only contains limited present covenants. The grant deed grantor promises that he has not personally taken any action to transfer or encumber the property's title. However, he makes no promise about what previous owners might have done. Therefore, a grant deed does not guarantee that the grantor is transferring good title; if a previous owner transferred the property before selling to the grantor, the grantee will have no cause of action against the grantor.