Florida Broker Practice Exam

Which type of deed is commonly used for foreclosed properties where the lender assumes responsibility only for their period of ownership?

1. Quitclaim deed

2. General warranty deed

3. Bargain and sale deed

4. Special warranty deed

The correct answer is: Special warranty deed

The special warranty deed is commonly used in transactions involving foreclosed properties because it provides a limited guarantee to the buyer. With this type of deed, the grantor, who is typically the lender in a foreclosure scenario, only warrants against defects that occurred during their period of ownership. This means the lender is not responsible for any issues that may have arisen before they took ownership of the property. This limited protection aligns with the lender's position, as they are usually unwilling to provide broader protections that would cover historical ownership issues that they didn't cause. As a result, this type of deed is often utilized in foreclosure situations, as it allows the lender to transfer the property while limiting liability for past claims or defects. Other types of deeds, such as the quitclaim deed or the general warranty deed, do not provide the same clarity regarding ownership history and liability. The general warranty deed offers comprehensive protection to the grantee against all defects in title, which is not in line with the limited liabilities that lenders prefer after taking possession of a foreclosed property.