A Special Warranty Deed is not the same as a General Warranty Deed, so does your REO buyer know the difference? Realtors who did not sell REO's, foreclosures, short sales and bank owned properties in the past may never have had to explain the difference to their buyers. But there is an important difference between these two deeds and Fannie Mae, HUD, and most bank owned homes are sold with a "Special or Limited Warranty Deed". I had to explain this to one of my investor buyers today when going over Fannie Mae's "Special" Real Estate Purchase Addendum (section 14). My buyer did not know there was a difference. Some Fannie Mae properties also have a "deed restriction clause" to prevent property rehabbers from making too much profit in a short time period. I'll save that for another blog.
A "Special" or Limited Warranty Deed is a deed that covenants or conveys insurable title to the purchaser which covers the time period for which the "Seller/Grantor" in this case Fannie Mae, owned the property only. The Grantor, Fannie Mae, does NOT warrant against defects in title that may have occured prior to their ownership of the property. The Grantor only warrants that they did not cause any title defects during their ownership. Special or Limited Warranty Deeds do provide more protection than a quit claim deed, but less protection than a General Warranty Deed.
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