The general warranty deed is the most commonly used deed in Texas. It's important for a seller to be aware of the potential liabilities created when real property is conveyed by general warranty deed. Parties to real estate transactions can reduce their risk by obtaining effective legal counsel and by purchasing title insurance.
Special thanks to the Real Estate Center at Texas A&M University. This article is excerpted from its website.
Understanding the General Warranty Deed
For an overview of general warranty deeds in Texas, see Seller Beware: Understanding the General Warranty Deed.
Generally speaking, a deed is an instrument that conveys an interest in property. While not all deeds contain warranty language, certain warranties are implied in almost every deed. The Texas Property Code provides that any time the words "grant" or "convey" are used in a deed, the grantor (seller) promises 1) that the grantor has not transferred any part of the property to anyone else, and 2) that the property is free from encumbrances (Section 5.023).
The implied warranties are made only to the grantee (buyer) in the deed. That is, they are not attached to the land. Only the immediate buyer may sue the grantor if the warranties are breached.
Express warranties are stated specifically in a deed. They are similar to implied warranties, but they give greater protection to the grantee and subsequent grantees, and they expose the grantor to greater liability.
A general warranty deed contains a warranty that looks like this:
And grantor hereby binds grantor, grantor's heirs, executors, and administrators to warrant and forever defend all and singular the said premises unto the said grantee, his heirs, and assigns, against every person whomsoever, lawfully claiming or to claim the same, or any part thereof.
What does this mean? It means that the seller is guaranteeing to compensate the buyer for any failure of title, all the way back to the time of the land patent from the sovereign. In Texas, that means the original grant from Spain, Mexico, the Republic of Texas, or the State of Texas. Additionally, this warranty is appurtenant to the land, meaning that it is attached to the land and "runs with" the land. In other words, the seller's guarantee is made to the buyer and to all subsequent grantees, and includes all title defects, even if the seller had nothing to do with them and had no knowledge of them, and even if they originated over 180 years ago.
When a general warranty deed is given, the grantor promises that 1) the grantor will defend and protect the grantee against the rightful claims of third parties to the property (warranty of title), and 2) the property is free of encumbrances (covenant against encumbrances).
An encumbrance is any impediment to the title that does not change the ownership of the land, but that diminishes the value or use of the land. Examples include liens, tax assessments, leases, and easements.
Note the similarities and differences in the implied and express warranties. The implied warranty extends only to the immediate grantee and only says that the grantor has not previously conveyed the property to a third person. The express warranty goes much further. It extends to all subsequent grantees and covers every potential defect in the title.
A warranty does not strengthen or enlarge the title conveyed. It does not even guarantee that the grantor owns the property. It simply promises to compensate the grantee in the case of a failure of title.
Breach of Warranty of Title
A breach of the warranty of title occurs when a third party has a valid claim to the property—a failure of title. For example:
- The seller may have previously conveyed part or all of the property to a third party.
- A previous owner may have previously conveyed part or all of the property to a third party.
- A third party may have adversely possessed the property prior to the date of the transfer of the property.
- A third party may have obtained title through a separate chain of title.
A failure of title may be total or partial. A total failure of title occurs when no interest in the property passes to the grantee as a result of the deed. A partial failure occurs when only part of the property interest passes to the grantee.
In the event of a total failure of title, damages are the purchase price paid the grantor, with interest.
In the event of a partial failure, the damages depend on the circumstances. If title fails as to a certain part of the land, then the damages are calculated by determining the value of the part to which title fails in proportion to the value of the entire tract, and then multiplying the resulting fraction by the purchase price.
If title fails as to an undivided interest, damages are calculated by dividing the price paid to the grantor for the entire tract by the number of acres in the entire tract at the time of the conveyance to obtain a price per acre and then multiplying by the percentage of undivided interest for which title failed, unless the value of the failed interest is affected because it is an undivided interest.
If the grantee obtains full title by purchasing the outstanding interest from a third party who is the lawful owner, the buyer may recover the price paid for the outstanding interest, but these damages are capped at the price paid to the grantor for the entire tract.
A grantee may also recover other costs, taxes paid, and attorney fees.
Breach of Covenant Against Encumbrances
Encumbrances include liens and tax assessments. Easements or restrictions on use may also be encumbrances. However, easements and restrictions are often excepted from the warranty.
An example of a breach of the covenant against encumbrances is the existence of a lien on the property. The breach technically occurs at the time the covenant is made. However, the buyer may not sue until 1) the lienholder forecloses and takes the property from the buyer, or 2) the buyer pays to discharge the lien. In this event, the grantor may be sued for the cost necessary to discharge the lien or encumbrance.
If the breach is based on an impediment, such as an easement or restriction, the damages are the difference in the value of the property without the impediment and the value of the property with the impediment. These values are calculated at the time of the transfer of the property.
There are several common ways the parties to the transaction may allocate the risk involved.
Limit or eliminate the warranty. If the parties agree, a special warranty deed may be used. In a special warranty deed, the seller reduces his risk by limiting the warranty.
Title Insurance. A real estate broker or salesperson is required to advise each buyer that the buyer should 1) have the abstract of title examined by the buyer's attorney, or 2) obtain a title insurance policy.
Provisions in a property deed that discriminate based on race, color, religion, or nationality are void and can be removed.
In this article, you will learn about Transfer on Death Deeds (TODDs).
This article tells you about getting divorced when you and your spouse own (or are purchasing) a house or land.