Bargain and Sale Deeds

Today we are going to talk about bargain and sale deeds. But first, let’s talk about what a deed is.

Deeds are evidence that title to real property has been transferred. Title is a legal term that refers to ownership of something. In real estate, that something is property. A person with title to a home has legal rights, ownership control, and responsibility over that home. A deed is the actual legal document that transfers the ownership of a property. The deed is signed by the person selling or transferring the property rights, also known as the grantor, and the deed transfers those property rights to the grantee.

There are several types of deeds, including warranty deeds, quitclaim deeds, and bargain and sale deeds. The type of deed that should be used in a given situation will depend on the nature of the property being transferred.

General warranty deeds are commonly used when property is sold because of the level of warranty they provide. A general warranty deed will usually include statements asserting 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 do arise, regardless of when the claim is said to have occurred.

A special warranty deed, also called a limited warranty deed, includes many of the same statements. The difference is that the special warranty deeds only cover claims that happened while the grantor held title to the property. If a claim pops up that took place before the grantor held title, the buyer is on their own. Which is why a special warranty deed is only used when a general warranty deed isn’t an option, like when a grantor sells a property acquired through foreclosure. 

With a quitclaim deed, the seller makes no warranties of any kind. 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 the property." This would not be very reassuring to someone spending half a million dollars on a home, so quitclaim deeds aren’t normally used for property sales. Instead, they are helpful for quick transfers between people with established relationships such as between family members or when a situation requires a property’s quick release.

Now, let’s talk about the Bargain and Sale Deed. 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 and from the grantee's perspective, this is better than a quitclaim deed, but not as good as a warranty deed.

Sometimes, a bargain and sale deed will specifically state one or more additional guarantees. This is known as a bargain and sale deed with covenants, and it’s similar to a special warranty deed. It’s better for the grantee than a bargain and sale deed without covenants, but still not as good as a general warranty deed.

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

When given the option, grantors prefer to use a bargain and sale deed because it limits their liability. Grantees, on the other hand, will always prefer a general warranty deed because it gives them the most protection possible.

Anyone taking title to property with a bargain and sale deed should understand that they are accepting a risk as there may be claims against the property. If any warranties or covenants are included in the deed, the grantee should read them carefully to make sure they fully understand what they’re getting into. Because once the transfer with a bargain and sale deed has been accepted, the grantee can only sue the grantor if some type of claim arises that is specifically covered by a covenant in the deed.

Of course, a grantee in a real-life situation like this should probably look into title insurance and maybe even seek legal counsel. But since we’re only worried about the real estate exam, just keep in mind that bargain and sale deeds are used when limited or no warranties can be provided but title can be proved.