Getting to know your bargain and sale deed

If you are purchasing property that was the subject of foreclosure, a tax sale, or the estate of a deceased person, you may encounter a document known as a bargain and sale deed. Such deeds are most commonly used in Colorado, New York, Vermont, Washington, and Wyoming. In such a transaction, you need to understand the limitations of such a deed.

Real property transfers

To understand a bargain and sale deed, you should first understand some basic information about property transfers in general. Although state law determines the exact requirements for a deed, any deed—including a bargain and sale deed—should contain the following information:

• The name of the grantor, or person transferring title
• The name of the grantee, or person receiving title
• A statement that title is being transferred from the grantor to the grantee
• The official legal description of the property
• The signature of the grantor and the date of signature

State laws also often require that a deed be signed by two witnesses and that the signatures be notarized.

Common types of deeds

There are several types of deeds. Which type is used depends upon the nature of the transfer. The differences between them relate to guaranties, also called warranties or covenants, that the grantor makes regarding the quality of the title being transferred. These warranties generally fall into two categories: warranties regarding the grantor's ownership of the property and warranties regarding claims against the property. Claims, also called encumbrances, are types of title problems, such as mechanic's liens for repairs or improvements to the property, judgment liens for lawsuits against prior owners, or title, boundary, or easement disputes.

The most common deeds used in most states are:

• General warranty deed. Most commonly used when property is sold, a general warranty deed includes statements that the grantor is the legal owner of the property, that there are absolutely no legal claims against the property, and that the grantor will hold the grantee harmless in the event any claims arise. Some states have an official form in the state's laws, commonly known as a statutory warranty deed, where the warranties are implied and are not stated in the deed.
• Special warranty deed. Also called a limited warranty deed, a special warranty deed covers only claims incurred while the grantor has title—not any that arose before the grantor owned the property. A special warranty deed is often used when the grantor sells property acquired through foreclosure.
• Quitclaim deed. The seller makes no warranties with this type of deed. In essence, a quitclaim deed says, “I transfer all of my rights in this property to you, but I don't guarantee that I have any rights in this property." Quitclaim deeds are commonly used to transfer property between family members or into or out of a trust, or to correct a problem with the document itself such as the misspelling of a name.

Bargain and sale deeds

In its most basic form, a bargain and sale deed includes a warranty that the grantor has title to the property but does not guarantee that the property is free of claims. This is known as a bargain and sale deed without covenants. From the grantee's perspective, this is better than a quitclaim deed but not as good as a warranty deed. If a bargain and sale deed specifically states one or more additional guarantees, it is known as a bargain and sale deed with covenants, which makes it similar to a special warranty deed.

Bargain and sale deeds are most often used when property is transferred pursuant to a foreclosure, tax sale, or settlement of the estate of a deceased person. They may also be used in the same situations as a quitclaim deed, although they give the grantee a little more protection.

Generally, a grantor would prefer to use a bargain and sale deed because it limits their liability. In contrast, a grantee would prefer a general warranty deed because it gives them the most protection possible.

If you are taking title to property with a bargain and sale deed, you need to understand that you are accepting the risk that there may be claims against the property. If any warranties or covenants are included in the deed, you should read them carefully to be sure you understand them.

By accepting transfer with a bargain and sale deed, you cannot sue the grantor if some type of claim arises, unless it is specifically covered by a covenant in the deed. To reduce the chances of a problem, you may want to look into obtaining a title search and title insurance.