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A warranty of title is a guarantee by a seller to a buyer that the seller has the right to transfer ownership and no one else has rights to the property. In addition, a warranty of title may be used to guarantee that no other party has copyright, patent or trademark rights in the property being transferred.
A formal warranty of title is included in a warranty deed, which is used to transfer property in a sale legally. This document guarantees that the seller has the legal right to transfer the property and that no other entity, such as the Internal Revenue Service or an ex-spouse, has a lien against or claim to the property. A warranty deed's warranty of title protects the buyer's interests and gives the buyer legal recourse if any entity later tries to make a claim to the property.
Other types of deeds such as a quitclaim deed do not provide a warranty of title. There is no guarantee of a clear title, but the grantor effectively signs away their interest in the property. If a question of ownership arises later, the buyer would not have the protections that a warranty of title would grant.
A warranty of title is automatic in most sales, but if the seller is acting as a representative, no warranty of title may exist. This situation might arise in an auction, a sheriff's sale, or an estate sale. In these cases, the person selling the property is not its owner and therefore may not be aware of any other entity's rights in that property.
Warranty of title can give the buyer of a property legal recourse to sue the seller if there is a claim or issue attached to the property. For example, an heir of a prior owner may have an unresolved claim to the property that was not made known by the seller. The buyer could pursue litigation to recoup the money they put toward the purchase along with damages.
Other risks to completing a transaction can include ongoing disputes about the boundaries that define the property. The owners of the adjacent real estate might claim the property lines are different from what the seller presented to the buyer. Liens for unpaid bills and taxes could exist, further complicating the transaction.
If the property is completely free of impairments and ownership is properly established, then the property a clear title and the seller can offer a warranty of title without any encumbrances.