What is a bargain and sale deed?
If you’re in the market for a property, you may come across a term called “bargain and sale deed.” This type of property deed signifies that only the seller holds the title and has the authority to transfer ownership. However, it’s important to note that this type of deed does not provide any guarantees to the buyer against potential liens or claims on the property. As a result, the buyer could be responsible for addressing any title issues that may arise.
Bargain and sale deeds are primarily utilized in situations involving property foreclosure or tax sales. In these cases, the seller may have limited knowledge about the property’s history and status, which is why they opt for this type of deed.
According to Eric Maribojoc, the Executive Director of the Center for Real Estate Entrepreneurship at George Mason University, with a bargain and sale deed, “The seller makes no representations with respect to any claims against the property or title defects. The buyer is accepting the property subject to any existing claims or title defects.” It’s worth noting that the seller may choose to make note of certain encumbrances, such as outstanding property taxes, which would categorize the deed as a “bargain and sale deed with covenants.”
Bargain and sale deeds are valid in specific states like Colorado, New York, Vermont, Washington, and Wyoming. In these states, most real estate buyers will typically insist on a bargain and sale deed with covenants. This means that the seller asserts they have not encumbered the title to the property being conveyed, except for any encumbrances specifically referenced in the deed.
It’s crucial to understand what or whom the covenants protect in the case of a bargain and sale deed with covenants. They may only cover what the seller knows about or was directly responsible for.
Another type of deed to be aware of is the quitclaim deed. This deed does not imply or infer that the seller has ownership of the property; instead, it transfers only the interest (if any) that the seller has in the property. While quitclaim deeds are more commonly used in transactions among family members, they are not unheard of in foreclosure or tax sales.
Both bargain and sale deeds and quitclaim deeds do not provide representations regarding any claims against the property or title defects. In certain states like Maine and Massachusetts, quitclaim deeds with warrants are the typical instruments used for transferring real estate.
In contrast, a “general” warranty deed is the most protective form of deed. It indicates that the seller owns the property, has the right to transfer it, and warrants against any claims since the beginning of the property’s record. A “special” warranty deed shares these characteristics, but it generally only warrants against claims arising during the period of ownership of the seller.
Understanding the type of deed attached to a property is crucial for investors. For those looking to flip a property, any unresolved title issues could add significant risk to the transaction and impact the bottom line. This is why opting for a comprehensive deed is key.
Investors should also ensure that the property is financeable by a lender, and insurable by a title company. Title companies conduct thorough title searches to identify any issues and offer insurance to help settle any unresolved claims that may arise.
In conclusion
buyers should negotiate the form of deed before signing a purchase contract and ensure that their lender and title company approve the form of deed in advance of the closing. Being informed about the type of deed used in the transaction can also impact your title insurance premium.