A real estate contract will typically specify what type of deed the seller is willing to give you.
There are four types of deeds that may be given.
1. A general warranty deed has the effect of the seller promising you that there are no title defects and no other claimants. If there is a problem later, the seller will pay to defend your title and will be liable to you for damages if the title cannot be defended. You will almost never receive a general warranty deed in a foreclosure purchase.
2. The special warranty deed simply promises that the seller has done nothing to cause title problems.
3. A bargain and sale deed means the seller thinks he or she might own some interest in property, but he or she is not making any promises about anything.
4. A quitclaim deed means the seller probably does not own anything at all, but whatever he or she does own, he or she is willing to sell to you without promises. Some states use quitclaim deeds to also cover the bargain and sale deed situation.
The problems come up when, for example, your contract requires the seller to deliver a special warranty deed and you discover at closing that a prior owner caused title defects. This could happen if you buy from the lender after foreclosure, and the borrower’s IRS liens or spousal claims are still in place.
You cannot cancel the closing and receive a refund of your earnest money because by agreeing to give you a special warranty deed, the seller did not claim that he or she would give you clear title. As a result, you do not have a legally valid reason for canceling the purchase.