Covenant Deed vs. Warranty Deed and Quit Claim
Title Issue that Comes up When Buying a Foreclosure
"Covenant deeds are not illegal. With a warranty deed, the grantor is warranting title against all prior claims - even claims that arose prior to the grantor acquiring title to the property. With a covenant deed (or "deed C") the grantor's warranty is limited to claims arising from the actions of the grantor. You get a little more from a covenant deed that you would get through a quit claim deed. Bank/sellers` are never going to give someone a warranty deed, the battle is typically over whether the bank will give a covenant deed or only a quit claim deed.
If I was a buyer, I would push for the covenant deed and in all events make sure that I had good title insurance in place to protect me. Good title insurance from a reputable company is always important but particularly so if you are getting something less than a warranty deed. Purchasers need to keep in mind that there is title insurance out there these days that really doesn't protect the them because the exceptions to coverage are way too broad.
I usually review the title company's pre-committment policy and often with recommend that buyers taking covenant deeds (or quit claim deeds) should strongly consider having their real esate attorney look at the title commitment/policy before they close. This is even more important if the policy is coming from an affiliate of the seller/bank --or other title company that we may not be as familiar with."
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