When obtaining a home loan, you’ll receive two important documents from your lender: a loan estimate and a closing disclosure. On the surface, these documents are very similar, but they both serve different purposes. Here’s what you need to know about the differences between these two forms and what each means for you:
What is a warranty of title, and how does it protect buyers?
When buying a home, your real estate agent and lender will research the home to ensure the integrity of the property. This includes not only inspections but title searches and what’s known as a warranty of title.
A warranty of title is included in a warranty deed and used to transfer property and protect the buyer’s interest legally.
Warranty of title helps guarantee a good and marketable title
A warranty of title is automatic in most sales; with it, a seller is ensuring that they can establish free and clear ownership of the property. When selling a property with a warranty of title, the seller must have no liens on the property. Otherwise, the buyer will need help to secure a clear title to the property.
Warranty of title protects the buyer’s interests
A warranty of tile protects the buyer’s interests against risks that would make the property less valuable to them. These include:
- Any undisclosed mortgages on the property.
- Any liens that arose when the prior owner owned the property, including unpaid property tax liens.
- Any unresolved claims to the property, like an heir of a previous owner.
If a buyer unknowingly buys a home with a claim on it and that information comes to light later on, either because it wasn’t disclosed or unknown, they’re not responsible for it. Instead, the seller is responsible for all financial liability for settling the claim on the property.
Quitclaim deeds do not provide a warranty of title
A warranty of title is different from a quitclaim deed in that quitclaim deeds are not used to transfer property through a sale. Instead, they remove someone’s rights and interest in the property or transfer it to a family member.
When are warranties of title not applicable?
If the property is being transferred as a gift, like between parent and child, the property is almost always transferred without a warranty of title. The same is true in an auction, sheriff’s, or estate sale.