What is a Bargain and Sale Deed?
A bargain and sale deed is used to convey property ownership from a grantor to a grantee. The grantor is the person who currently holds ownership of the property. The grantee is the person receiving ownership of it.
A bargain and sale deed implies, but does not explicitly state, the grantor’s right to sell the property. The grantee does not know whether there are any title defects unless the deed specifically lists them. Bargain and sale deeds offer very little protection for buyers. As such, they should be used cautiously.
A bargain and sale deed contains the following provisions:
- The date of sale
- The names of both buyer and seller (grantor and grantee)
- The amount paid for the property
- The type of estate granted
- A legal description of the property
- Legal phrases like “grant, bargain, and sell” or “grant and release”
Using covenants in a bargain and sale deed
There are two types of bargain and sale deeds: those with covenants and those without covenants. In a bargain and sale deed with covenants, the grantor guarantees the buyer that the property is not subject to outstanding debt. In a bargain and sale deed without covenants, there are no guarantees. Essentially the seller is stating they are unaware of any existing encumbrances, but they are not making any promises.
Why covenants matter
Covenanted deeds offer minimal protection for bargain and sale deed buyers. Often, the deed lists specific guarantees, but other issues are not covered. For example, the grantor may state that no back property taxes are owed against the title. However, the property could still have foreclosure debt attached to it.
Bargain and sale deeds without covenants offer no protection. If a title defect or encumbrance is found, it is the new owner’s responsibility. The grantor cannot be held liable for issues that arise after the sale.
Securing additional protections
If the deed does not offer purchase protections, you may be able to include them in your purchase offer. For instance, you can insist that the seller removes any encumbrances before closing and must defend the title against future claims in these areas. This puts the responsibility for any title defects on the seller. However, the deal may not go through if the seller does not agree to these conditions. At estate, tax, or foreclosure sales, conditional offers may not even be considered.
Encumbrances to bargain and sale deeds
Several issues could crop up after a sale. While you may have a good title, it is important to be aware of potential issues. Here are a few of the encumbrances you could face if you use a bargain and sale deed.
A lien is a monetary claim against property or real estate. The property acts as security for the owner’s debt or obligations. Unpaid taxes, mortgages, and court orders can all create liens on a piece of property. Smart buyers make sure any liens are listed in the deed or are resolved before the purchase is finalized.
A deed restriction limits the property’s use. For example, if you buy property in a subdivision, it could carry a deed restriction that prevents commercial development of the property. In turn, that provision could keep you from using part of your residence for your home-based business.
An easement grants non-owner limited rights to use the property. Easements do not disappear just because the property is sold; they transfer with the title.
There are two primary types of easements. The first is an easement in gross; it gives utility companies or other public entities rights to run lines through part of your property. The second is an appurtenant easement. It grants an adjacent neighbor limited access to part of your property. For instance, two neighbors might share a driveway.
An encroachment can interfere with a clean title transfer. An example of encroachment is a building with one corner that crosses the boundary line of the property next to it. The owner of the encroached property may be entitled to damages or may be able to force the building owner to remove the offending portion.
Deciding when to use a bargain and sale deed
This type of deed is primarily used in two situations. The first is when the seller has not occupied the property and knows little about it. Properties of this type are mainly sold at foreclosure auctions or tax sales. An estate administrator may also use a bargain and sale deed.
The second situation involves clearing up any unclear language that may give the seller continued rights to the property.
There is a third, less common reason for using a bargain and sale deed. The current property owner may use this type of deed to transfer real estate to a trust for their family. The property transfer may also take place between two family members.
Exploring alternatives to bargain and sale deeds
The typical appeal of a bargain and sale deed is an attractive price tag on the property. However, they may not always be your best option. Here are some alternatives to bargain and sale deeds. They are listed in order from the most protections to the least protections.
General warranty deed
A general warranty deed offers six specific buyer protections.
- The seller owns the property.
- The seller has legal right to sell the property.
- The title being conveyed is free of liens and encumbrances, except for those listed in the deed.
- This title overrules any other title against the property
- The seller will use any legal tool to make sure the buyer has a good title. Examples include deeds, releases, or waivers. Note that this provision is not available in all states.
- The seller will defend the title against any future legal claims.
In other words, if any issues arise that prevent the buyer from holding a good title to the property, the seller is responsible for damages or legal expenses. This is the gold standard for real estate sales.
Special warranty deed
This type of deed is also called a limited warranty deed. It provides the same assurances as a general warranty deed, but only for the period the seller owned the property. This type of deed may work well if the owner has held the property for several years. However, it may not be a good idea if the owner only held the property as a short-term investment.
Quitclaims do not transfer ownership in any way. When property is sold, it may require a quitclaim to avoid future encumbrance. For example, imagine a brother and sister inherit a home. The brother moves away, and his sister maintains the home. If the sister wants to sell the house, her brother may need to sign a quitclaim to relinquish his interest in the property.
Where bargain and sale deeds fall on the spectrum
Bargain and sale deeds fall right between a special warranty deed and a quitclaim. They do not provide as many protections as a special warranty deed, but they do convey more rights than a quitclaim.
Getting help when you need it
There are many factors to consider when you use a bargain and sale deed. The price may be attractive, but it is important to consider your rights and obligations before buying or selling with this type of deed. If you have questions, ask an Expert. They can provide additional information to help you decide whether a bargain and sale deed is right for your transaction.