Most legitimate real estate contracts, both residential and commercial, include a provision dictating the specific form of deed that will be exchanged between the Seller and Buyer at Closing. However, particularly for relatively inexperienced parties, this can seem like a “throw away” provision that doesn’t hold a great deal of weight. This could not be more wrong.
In Ohio, we generally see four different types of deeds: (i) a general warranty deed, (ii) a limited warranty deed, (iii) a quit claim deed, and (iv) a fiduciary deed. The type of deed selected to transfer the property has implications concerning the title conveyed from Seller to Buyer and the Seller’s potential liability for any title defects moving forward, often independent of any owners’ policy of title insurance (if one exists).
Before diving into these different types of deeds, perhaps the more basic question to understand is: What is title? Title to real estate relates to any rights or claims to a property. It encompasses the right to own, possess, use, control, enjoy, dispose/sell, or exclude others. Buyers seek as clear of title as possible and as many guarantees of the same as the Seller is willing to give. On the other hand, the Seller should be mindful of the promises it is making based on the type and language of the deed.
General Warranty Deeds
Perhaps the most common form of deed, especially in the residential context, is a general warranty deed. The inclusion of the words “general warranty” constitutes a promise by Seller that:
- Seller is the fee simple owner of the property;
- The property is free from all encumbrances;
- Seller has the right to sell the property; and
- Seller will defend Buyer relative to each of these promises, forever, against the lawful claims or demands of all persons.
Ohio Rev. Code 5302.06. Thus, for example, if a property is transferred with general warranty covenants, and someone later claims to have an easement over the property, the Seller has an affirmative duty to defend the Buyer’s title, which also includes payment of Buyer’s attorneys’ fees. You can read more on the duty to defend here: https://finneylawfirm.isoc.net/ohio-real-estate-law-triggering-duty-defend-general-warranty-deed-claim/.
This is obviously a tall order for two relatively unassuming words and therein lies the importance of understanding what they mean and their implications.
Limited Warranty Deeds
When transferring a property via limited warranty deed, the Seller is promising to convey as good of title as he or she received. Essentially, this means Seller is promising that Seller did not do anything to impair or encumber the title to the property. However, it is not as broad as a general warranty deed which covenants the same relative to periods both prior to and during Seller’s ownership of the property.
Fiduciary Deed
A fiduciary deed transfers property from a Seller acting as—you guessed it—a fiduciary (e.g., a trustee, executor of an estate, etc.). This connotes that the Seller is not the direct owner but is selling the property on behalf of another person or entity, that they are duly appointed to serve in that capacity, that they have legal authority to sell the property, and that they have followed all statutory requirements. A fiduciary deed does not make any warranties relative to title. Otherwise, fiduciaries could face liability relative to title defects for property that isn’t even directly theirs, resulting in a chilling effect where individuals would seldom wish to serve in such capacity for fear of such repercussions.
Quit Claim Deed
A Quit Claim Deed, likewise, makes no warranties or representations relative to the title of the property being transferred. It is somewhat akin to an “as is” clause but, instead of the physical condition of the property, it relates to the title.
Differences between the Contract and Deed
Scenario 1: Seller makes broad representations in the Contract to Purchase or Purchase and Sale Agreement (PSA) that he or she is conveying good, clear title free from all encumbrances, but then there is only a limited warranty deed.
Scenario 2: Seller is skittish and does not wish to make any representations as to title but will otherwise agree to convey title to the property using a general warranty deed.
Unless the Contract or a particular provision therein specifically states that it will survive Closing then, at the Closing, the Contract merges with the Deed. This means that any conflicts as between the Contract and the Deed are resolved in favor of the Deed and what the Deed says is what controls. In Scenario 1 above, the Seller would only be liable, and the Buyer would only have recourse against the Seller for, any defects that occur during Seller’s ownership. In Scenario 2 above, Buyer could concede on requiring representations in the Contract because the general warranty deed covenants have the same effect and those are what will control should an issue arise post-closing. These are but a couple of examples illustrating the practical effects of the type of deed used to convey property and the ways in which the type of deed can impact contract negotiations and ongoing liability as well.
In any event, we always recommend that Buyers purchase an owner’s policy of title insurance (this is in addition to the lender’s policy, which only protects the lender). This is especially true where the Buyer is taking title via limited warranty, fiduciary, or quit claim deed, as their recourse against the Seller will be extremely limited, if not non-existent.
For help negotiating the purchase or sale of real estate or understanding the terms thereof, including the deed provisions, please reach out to Attorney Casey A. Jones at (513) 943-5673 or Casey@FinneyLawFirm.com. We are happy to assist clients who are buying or selling with or without a real estate agent; however, if you do have an agent, we will work alongside your agent to ensure the most appropriate and comprehensive representation to protect your interests.
