A warranty deed is an instrument used to transfer title of property from the grantor/seller to the grantee/buyer. Warranty deeds are the most commonly used because of the protection they provide to the seller. When a seller transfers property with a warranty deed, the seller is promising that the property has no mortgages or liens encumbering it. Warranty deeds also create liability in the seller if the buyer finds out the title was encumbered or defective in some way.
In Texas, vendors -- or the sellers of real property -- can transfer property using a warranty deed with a vendor's lien attached. Although a warranty deed generally includes promises from the seller that the title is free of defects or liens, a warranty deed with a vendor's lien includes a promise from the buyer to the seller.
The Effect of a Vendor's Lien
When a warranty deed contains a vendor's lien, the buyer agrees to allow the seller to seize the property until the property is paid for in full. For example, if a warranty deed includes a vendor's lien, the seller keeps the right to take possession of the property until the buyer finishes making payments. As such, the seller holds legal title until the buyer makes the last scheduled payment.
Texas law allows warranty deeds with vendor's liens as an assurance to the seller that he can repossess property, just as a mortgage lender would. Vendor's liens are used when the buyer is not borrowing from a bank or financial institution but is instead borrowing from the seller of the property. When a buyer has difficulty obtaining a mortgage from an institutional lender, the seller of property can loan him the money. Just as institutional lenders retain the right to seize mortgaged property, a seller with a vendor's lien retains the same right in the event the buyer fails to make scheduled payments.