There are many types of deeds, and different deeds offer different rights and levels of protection. Since every deed has different purposes, it can affect your legal rights differently. A bargain and sale deed is needed for the sale and purchase of properties, but how does it work? Should you consider using this type of deed? Keep reading to learn more about bargain and sale deeds.
What Is a Bargain and Sale Deed?
A bargain and sale deed demonstrates that only the seller of the property holds title of ownership and legally has the right to transfer the property.
This type of deed doesn’t offer any protection against any claims to the property from previous owners, just the current one. Thus, buyers must check everything before purchasing, as the responsibility for these issues will be on the buyer. Additionally, from the buyer’s perspective, this is a safer option than a quitclaim deed but not as safe as a general warranty deed.
What Is a Deed?
A deed is a legal document that confirms a right, an interest, or a property dealing. Using a deed is the most common way of transferring title of a property to a new owner.
What Is a Warranty?
A warranty is a legal promise that protects a buyer from any claims to title of the property.
How Does a Bargain and Sale Deed Work?
Bargain and sale deeds are mainly used while transferring property in a tax sale or foreclosure. These legal documents are used to facilitate the transfer of real estate ownership from the granter (previous owner or seller) to the grantee (new owner or buyer).
Commercial lenders prefer warranty deeds to bargain and sale deeds because regular warranty deeds protect against title defects, unknown easements, and tax liens from the previous owner. Bargain and sale deeds don’t offer these guarantees and are riskier for commercial lenders.
What Are the Main Components of a Bargain and Sale Deed?
Bargain and sale deeds only record the bare necessities of a transaction, which include the grantor and grantee’s names, due dates, legal description, and the amount paid for the property.
A bargain and sale deed includes a single warranty that states that the grantor or seller has title to the property and the right to transfer ownership.
This is generally what is and is not included in a bargain and sale deed:
- Names of grantor and grantee: The name of the grantor that states the ownership of the property. The grantee is the buyer of the property and the new owner who will get the title of ownership.
- The legal description of the property: The legal description of the property indicates the real estate property’s address and parcel number of the tax assessor.
- Affirmation of a legal right to sell: This right indicates that the property owner has the right to deed or transfer the property to another owner.
- No title protections: A bargain and sale deed has no guarantees that the property has some issues related to the title or any other ownership problems.
Bargain and Sale Deeds vs. Quitclaim Deeds
Quitclaim deeds are used to transfer interest in property where there are no monetary considerations. A bargain and sale deed offers more protection than a quitclaim deed as it states that the grantor owns the property and no other owner can claim it.
Compared to a bargain and sale deed, a quitclaim deed doesn’t offer such protections or warranties. A quitclaim deed only allows the grantor to show personal interest in a property. This deed is only used when the seller doesn’t need to guarantee the title or when the seller’s title is unclear.
Quitclaim deeds are usually used to transfer the property between two friends, co-owners, or family members or in situations involving no financial transactions. A bargain and sale deed includes more rights and claims and is more beneficial for both the grantor and the grantee.
Comparing Other Types of Deeds
In addition to bargain and sale deeds, there are other property deeds that you must understand.
- General warranty deed: A general warranty deed involves statements that indicate that the grantor is the owner of the property. Plus, it also states that there are no legal claims against the property. This deed is beneficial for the grantee as it holds the grantee harmless if any claim arises.
- Special warranty deed: A special warranty deed is also known as a limited warranty deed. The deed covers all the claims incurred when the grantor holds the title. However, there is no protection for any claims that arose before the grantor owned the property. This type of deed is often used when the seller transfers the ownership of the property acquired through foreclosure.
- Quitclaim deed: Quitclaim deed, as explained earlier, indicates that the grantor is transferring the rights of the property to the grantee. However, the deed doesn’t guarantee that the grantor has any rights over the property. This warranty is mainly used by family members to transfer ownership within the family or to correct an issue with a document.
Bargain and Sale Deed Examples
Let’s say person A wants to buy a property from person B. In this case, person A has little knowledge about the type of deeds. Person B offers a bargain and sale deed to Person A and convinces him that the property is free of claims. Person A signs the deed as a grantee, and Person B signs it as the grantor.
Several months after this purchase, the neighbors of this property claim a boundary dispute. Person A speaks with his lawyer and finds out that the deed falsely represents the boundary dispute and does not mention any protection specifying the property in question. The claims the neighbors are making are valid because person A has no legal protection included in their deed. This is a perfect example of one of the risks of using a bargain and sale deed; it doesn’t provide protection for any claims on the property.
Let’s do another example. David wants to transfer ownership of his property to his brother, John. David decides to use a quitclaim deed to give the ownership to John as it is the best option for transferring ownership between family members.
After the transfer of ownership, David decides to move to another country. However, later David’s wife claims a share of this property and states that she is the co-owner of this property. Since John only had a quitclaim deed which doesn’t grant any guarantee of ownership, John now only has partial ownership of the property. In this case, a Bargain and Sale Deed would, in fact, be the better choice than a quitclaim deed.
Bargain and Sale Deed Frequently Asked Questions
How to Create a Bargain and Sale Deed?
If you want to create a bargain and sale deed, you’ll have to contact a lawyer or agency to make the document. A bargain and sale deed offers minimal protection and rights to the grantee. Thus, if you’re going to take the sale deed, you must be very careful.
Before accepting the deed, you must know all the risks associated with the property will be on you. It’s best to discuss any legal questions you may have with a lawyer.
Once you’re good to go, the document itself must be signed to make it legal; the signing should be done in the presence of a notary public.
What Types of Deeds are Important?
Learning about the type of deed before buying or selling a property is important. Unresolved property issues can cause loss, and you must go for the best deed to avoid any inconveniences.
An all-encompassing deed should be the first choice for purchasing a property to protect you from any claims related to it. If buyers are ready to take risks by buying properties involved in tax sales or foreclosure with quitclaim deeds or bargain and sale deeds, they should be ready to pay for the additional risks.
A general warranty deed provides the strongest protection to property buyers. This deed guarantees that the seller has a good title from the previous owners, and now he can pass the good title to the buyer.
When to Use a Bargain and Sale Deed?
Bargain and sale deeds are used in estate sales, tax sales, and foreclosure. Some states like Washington, Colorado, and Wyoming commonly use bargain and sale deeds more frequently than others.
Most grantors prefer this type of deed as it offers limited liability to the seller. On the other hand, a grantee will prefer a general warranty deed.
Suppose you take title to a property through a bargain and sale deed. In that case, you must understand that you can encounter risks and that there can be claims against the property. Thus, you must carefully go through the warranties or covenants included in the deed. If a claim arises later, you can’t sue the grantor unless the claim is covered by a warranty or covenant in the deed.
What to Know for the Real Estate Exam
Bargain and sale deeds are crucial in real estate and show up on the real estate exam. Remember, a bargain and sale deed indicates how the property seller holds title and shows rights that owner has to transfer ownership to the buyer. A bargain and sale deed offers a better guarantee than a quitclaim deed, but it is not as good as a general warranty deed. Anyone taking title of a property through a bargain and sale deed should be ready to accept all the claims and risks associated with the property. In real-life situations, the grantee must consider title insurance and discuss everything with a legal counselor. Head here for more real estate exam related terms and explanations.