Property is one of the most valuable assets one can own in the United States. Transferring property from one owner to another requires a deed. There are several types of deed. Bargain and sale deeds release the previous owner from any liability for existing claims on the property. If you’re thinking of purchasing a property with a bargain and sale deed, you should get informed about what that means and the implied risk.
Risk and reward are a tricky balance in real estate. Some of the best deals come from unusual places. If you purchase a property from somewhere like a tax sale or foreclosure, you may encounter a bargain and sale deed. A bargain and sale deed typically provides no warranties that the property is free from liens, title defects, or any other claim. It does certify that the seller is the legal title holder, but not much else. This can mean a higher risk for you, the buyer, but it doesn’t mean it’s a bad deal. This article will help you understand the basics of property transfer and how a bargain and sale deed works.
Basics of property transfers
Two main documents verify ownership of a property: a title and a deed. A title is a legal document that includes the name of the owner of a property. By confirming ownership, it validates the owner’s claim to property rights like access and the ability to transfer. Owners may be multiple owners or entities.
A property deed is a legal document that is used to transfer property rights from one owner to another. Property transfers cannot happen without deeds, and they are used as proof of transfer for real estate. There are several types of deeds depending on the transfer.
To understand property transfers, you should know some key definitions, common types of deed, and deed requirements.
Key definitions
The following are some key definitions — as they relate to property transfer — that you should be familiar with to understand deeds.
- Grantor: the person transferring the title, the previous owner
- Grantee: the person receiving the title, the new owner
- Warranty: the promise that the conditions of an agreement are true or will be fulfilled
- Covenant: an additional promise made by the grantor included in an agreement
- Claim: any physical or legal damage to the property that demands coverage by title insurance or places legal holds on the property
- Encumbrances: debts, liens, title defects, easements, or other obstacles that the grantee is unaware of or does not agree to
Key types of deed
Common deed types in the United States include the following.
General warranty deed
General warranty deeds are the most basic form of a deed. They are best used in residential real estate when owners are confident that their property is in good standing. This means that there are no title defects, debts, or liens on the property. A general warranty deed protects both the seller and buyer. It guarantees that the grantor is the legal owner, that there are no legal claims or encumbrances against the property, and that the grantee is held harmless if a claim arises.
Special warranty deed
Special warranty deeds are similar to general warranty deeds. The difference is that this type of deed only provides a warranty against claims arising from when the grantor held the title. It does not guarantee that there are no title defects, debts, or liens originating before the grantor acquired the property. This type of deed is common when a home has previously undergone foreclosure. A special warranty deed may also be called a grant deed or limited warranty deed.
Quitclaim deed
Quitclaim deeds don’t contain any warranties for a property. Buyers are not guaranteed that the grantor has legal rights to the property or that there are not any claims against it. Quitclaim deeds can be one of the fastest ways to transfer a property. A quitclaim deed may be used to transfer property between family members, to a trust, during a division of property or when there is uncertainty about the title.
Deed of trust
A deed of trust is a legal document that serves as an agreement between a lender, borrower, and a neutral third party — otherwise known as a trustee. Such a deed acts as a lien on the property when a loan is issued. Once the borrower pays back the loan, the deed of trust expires. At that time, the borrower claims full title, meaning full ownership. If either party dies or becomes incapacitated, a successor trustee may get involved.
Mortgage deed
A mortgage deed is similar to a deed of trust. The main difference is that it is an agreement between two parties only — the lender and the borrower — who split title to the property, meaning they share ownership. Upon paying off the loan, the borrower claims full ownership.
Bargain and sale deed
Bargain and sale deeds can be similar to quitclaim deeds and special warranty deeds. At a minimum, they contain a warranty that the owner legally holds the title to the property. Keep reading to learn the ins and outs of bargain and sale deeds.
Key deed requirements
All deeds share a few requirements. At a minimum, a deed should contain the following information.
- Name of the grantor
- Name of the grantee
- Title transfer statement
- An official legal description of the property
- Signature of the grantor and date of signature
- Signature of two witnesses and notarization (in most states)
What is a bargain and sale deed?
A bargain and sale deed guarantees that, at the very least, the grantor legally holds the title and right to transfer ownership. It offers no warranty against any encumbrances, so the grantee is responsible for any existing claims or title defects.
Bargain and sale deed vs. quitclaim deed
A bargain and sale deed is similar to a quitclaim deed in that it does not guarantee the property is free from encumbrances. It’s different from a quitclaim deed because it comes with at least one warranty and the possibility for covenants, depending on the situation. If the bargain and sale deed includes covenants, it becomes more like a special warranty deed.
Bargain and sale deeds with and without covenants
A grantor can choose to include covenants specifying the existence of certain encumbrances or that the property is free from encumbrances except those listed on the deed. If the bargain and sale deed includes a covenant, it is called a bargain and sale deed with covenants. If the bargain and sale deed does not include any covenants, it is called a bargain and sale deed without covenants.
Bargain and sales deed usage, risks, and protections
Bargain and sale deeds are typically used in situations where grantors want limited liability in the property transfer, where there is uncertainty about the property or both. These situations may be similar to those that trigger quitclaim deeds. Bargain and sale deeds are also commonly used in foreclosures, tax sales, or settlement of an estate of a deceased person.
Buyers often request bargain and sale deeds with covenants for more protection of their purchases. Grantees should understand that bargain and sale deeds come with more risk than a general warranty deed.
Consulting a real estate attorney is a good idea to make sure the deed is in the best interest of both parties. At least, both parties should understand the risk they are undertaking.
How does a bargain and sale deed work?
Once a buyer and seller initiate a property transfer, a real estate attorney may help draft the property transfer deed if needed. Hiring a real estate attorney may not be necessary if the buyer and seller have all the information they need or are transferring property between family members. Typically, the grantor party will draft the deed document.
Bargain and sale deeds must contain the legal description of the property, names of the grantor and grantee, affirmation of a legal right to sell, and no title protections. After the deed is drafted, the grantor and grantee may negotiate terms and sign the deed.
FAQ
What is the meaning of bargain and sale deed?
Bargain and sale deed means that the seller is the legal title holder but makes no promises that a property is free of claims.
Who uses a bargain and sale deed?
Family members transferring property between one another may use this type of deed. Parties also use it to transfer foreclosed properties, estates of the deceased, and properties sold in tax sales.
Who keeps the sale deed?
Typically, a buyer keeps the original deed for proof of transfer. Sellers can keep copies for their records, as well.
Which deed offers the greatest protection?
A general warranty deed offers the greatest protection to the buyer or grantee. The seller or grantor incurs the least risk with a quitclaim deed, since the grantor makes no guarantees of any sort with this deed.
Which type of deed gives the grantee the most protection?
As just noted, a general warranty deed offers the most protection to the grantee. A bargain and sale deed with covenants offers less protection, a bargain and sale deed without covenants still less. A quitclaim deed offers no protection.
Continue learning about real estate
If you’re ready to learn more, SuperMoney is ready to assist. Does it seem to you that houses today are less affordable than ever in your lifetime? Well, then, you might be surprised to learn that, measured in a certain way, real estate affordability hasn’t changed much over the past 40 years. Is this way of measuring affordability reasonable and accurate? Judge for yourself by reading Believe It or Not, Real Estate Affordability Hasn’t Changed Much in 40 Years.
Key takeaways
- In the United States, a deed is required when transferring property from one owner, the grantor, to another, the grantee.
- There are several types of deeds, depending on the transfer scenario. A general warranty deed offers the most protection, and a quitclaim deed offers the least protection.
- Bargain and sale deeds make no guarantees that the property is free from liens, title defects, or any other claims. The grantee is responsible for any claims that may arise. These deeds only guarantee the grantor holds legal rights to the property.
- Bargain and sale deeds can be risky. Buyers should take measures to protect themselves if entering into bargain and sale deed transfers with sellers they don’t know.
View Article Sources
- Getting to Know Your Bargain and Sale Deed — Edward A. Haman, Esq., J.D.
- Useful background reading from learning and personal finance sites — Various
- Property Ownership and Deed Recording — California State Board of Equalization
Both real estate law and customary practices can differ from one U.S. state to another. In California, for instance, warranty deeds are rare due to the widespread use of title insurance, as noted in this resource. - Register of Deeds — State of Michigan
A list of Register of Deeds offices in Michigan. This is an example of the kind of county-level offices you will need to deal with when recording or researching deeds. The relevant offices may go by different names in different states. - Believe It or Not, Real Estate Affordability Hasn’t Changed Much in 40 Years — SuperMoney
- What Happens If You Inherit a House With a Mortgage? — SuperMoney
- What Is a Grant Deed and How Does It Work? — SuperMoney
- What Is a Successor Trustee? Duties & Powers — SuperMoney
- What is a Warranty Deed and Do You Need One? — SuperMoney
