Limited warranty deed
A limited warranty deed — also called a special warranty deed — warrants title only against defects arising during the grantor's ownership.
Anything from before they took title is outside the promise.
What that means in practice#
A lender that acquired a house through foreclosure, held it for eight months, and sold it is warranting eight months.
If a defect emerges from a conveyance in 1994, the deed offers nothing. The grantor did not own the property then and has not promised anything about it.
That is a very narrow warranty, and it is honestly narrow — the seller genuinely has no knowledge to stand behind.
Who uses them#
REO and bank-owned sales, almost universally.
Institutional sellers — corporate relocation companies, entities that acquired property in bulk, funds disposing of assets.
Some commercial transactions, where the parties negotiate the warranty rather than accepting a default.
Between warranty and quitclaim#
A useful way to hold the three.
Warranty deed — I promise the title is good, all the way back.
Limited warranty deed — I promise I did not cause any problems.
Quitclaim deed — I promise nothing; whatever I have, you now have.
The middle position says something real. The grantor is standing behind their own conduct, which is exactly what a party with no knowledge of the earlier history can honestly do.
What a buyer should do about it#
Not refuse it — on REO purchases it is the only form on offer, and the addenda will not be negotiated.
Compensate for it. A careful title examination, and an owner's title policy.
Where the deed's warranty stops at the grantor's acquisition date, the title insurance is covering the rest of the history. That is precisely the risk it was designed for, and it is why buyers on these transactions who decline the owner's policy are taking a risk they have not priced.
Read the exceptions#
Limited warranty deeds on institutional sales frequently carry recited exceptions — easements, restrictions, matters of record.
Those exceptions narrow the warranty further, and they are in the deed rather than in the purchase agreement. Reading the deed before closing, rather than signing what the closing agent presents, is the whole of the protection available at that stage.
The Minnesota disclosure interaction#
Worth putting alongside the deed, because the two gaps compound.
Minn. Stat. 513.54 exempts foreclosures from the general seller's disclosure requirement, and a lender selling REO has no knowledge to disclose in any case.
So a buyer on a bank-owned purchase receives a deed that warrants only the lender's brief ownership, and a transaction that carries no disclosure of condition.
Two information gaps at once, and only two things close them: a thorough inspection, used fully inside the contingency period, and an owner's title policy covering the history the deed does not.
Buyers who skip either on exactly these purchases are taking a risk they have not priced.