What are Bargain and Sale Deeds?

Understanding the nuances of real estate deeds is essential for anyone involved in buying or selling property. The bargain and sale deed, while less common than some other types of deeds, is particularly important in specific contexts such as tax sales or foreclosures. Here's an expanded look at bargain and sale deeds to help you better understand when and how they are used.

How Do Bargain and Sale Deeds Work?

A bargain and sale deed is a type of real estate document that facilitates the transfer of property ownership from the seller (grantor) to the buyer (grantee). This deed confirms that the seller legally owns the property and has the authority to transfer it, but it does not provide protection against any prior claims on the property unless those claims are made by the current owner. This characteristic makes the bargain and sale deed somewhat riskier than more comprehensive deed types, such as the general warranty deed, but it offers more security than a quitclaim deed, which provides no guarantees about the seller's title to the property.

While the bargain and sale deed asserts that the grantor holds the title, it does not cover any liens, encumbrances, or claims from previous owners. This limitation necessitates that buyers perform thorough due diligence, such as a detailed title search, before proceeding with the purchase. For additional protection, buyers are also advised to secure title insurance, which can safeguard against financial losses due to title disputes that were not identified during the initial investigations. This makes the bargain and sale deed suitable for transactions where the property's history is well-known or in situations like tax sales or foreclosures where the property may be acquired at a lower cost, balancing out the potential risks.

Legal Implications

The absence of guarantees about previous claims can expose the buyer to potential legal issues from past owners or lien holders. Therefore, this deed is often used when the property's history is well-known to the buyer, or the property is sold at a public auction where such risks are generally understood and accepted.

When Are Bargain and Sale Deeds Used?

A bargain and sale deed is primarily used in non-traditional property transactions such as foreclosures and tax sales, where it facilitates a straightforward transfer of property ownership. This type of deed includes essential transaction details like the names of the grantor and grantee, the legal description of the property, and a statement confirming the grantor’s right to sell. It’s distinctive for not guaranteeing against claims or encumbrances prior to the current owner’s tenure, making due diligence crucial for the buyer.

Given its use in situations like tax lien sales or bank foreclosures, the buyer often must navigate the risks of undisclosed liens or claims independently. This requires thorough investigations like title searches and possibly obtaining title insurance to mitigate potential risks. The bargain and sale deed is thus tailored for buyers willing to assume certain risks for the opportunity to secure property at potentially lower costs.

Usage in Different Jurisdictions

Some states have particular rules regarding the use of bargain and sale deeds. In places like New York, this deed type can imply that the seller assures there are no encumbrances during their period of ownership, while other states might offer no such implications, increasing the risk for buyers.

Other Types of Deeds

Quitclaim Deed:

Often utilized in scenarios like transferring property ownership between family members or close friends, a quitclaim deed transfers whatever interest the grantor may have in the property without any guarantees about the title's quality or freedom from claims. It's most suitable when the property is not being sold commercially.

General Warranty Deed:

This deed offers the most comprehensive protection in property transactions, assuring the buyer against all prior claims and liens, irrespective of when they arose. It ensures the buyer of a clear and undisputed title, making it the preferred option in traditional property sales where security is paramount.

Special Warranty Deed:

A special warranty deed provides a middle ground of protection, covering the property against any claims that specifically arose during the period the seller owned it. It does not protect against claims from before the seller's tenure, making it less protective than a general warranty deed but safer than a quitclaim deed.

Key Components of a Bargain and Sale Deed

The simplicity of a bargain and sale deed doesn't detract from the necessity of including specific critical components:

Affirmation of Ownership and Right to Sell:

This clause is vital as it affirms that the seller holds clear ownership of the property and is legally empowered to sell it. This affirmation helps assure the buyer that the seller has the undisputed authority to transfer ownership, thereby facilitating a smoother transaction process.

Description of the Property:

This section provides a comprehensive legal description of the property, detailing its boundaries, physical address, and tax parcel number. It ensures that there is a clear and precise understanding of the property being transferred, which is essential for legal documentation and future references.

Acknowledgment of Risks:

This acknowledgment informs the buyer about the potential risks due to the lack of protection against any prior claims on the property. Understanding this limitation is crucial for the buyer to make informed decisions, especially regarding the need for thorough due diligence and possibly obtaining title insurance.

Practical Examples

Boundary Dispute Example

Imagine a buyer who acquires property via a bargain and sale deed. Later, a neighbor claims that a part of their driveway encroaches on the neighbor’s property. The buyer discovers that the deed offers no protection against this pre-existing dispute, leading to potential legal challenges.

Family Transfer Example

Consider a situation where a property is transferred between siblings using a quitclaim deed. If later another relative claims a stake in the property, the recipient finds that the quitclaim deed offers no defense against this claim, a situation where a bargain and sale deed would have provided a minimal safeguard.

Creating a Bargain and Sale Deed

When drafting a bargain and sale deed, it is crucial to work with a legal expert who can ensure all necessary legal elements are covered, including any state-specific requirements. The lawyer can also help clarify the potential risks involved with accepting a bargain and sale deed.

When to Use a Bargain and Sale Deed

This type of deed is typically suitable for non-traditional sales where the buyer may be assuming more risk, such as in tax lien or foreclosure sales. Buyers should thoroughly understand the limitations of this deed type and prepare for potential unseen claims.

Studying for the Real Estate Exam

Want to make studying for the real estate exam easy? Join our real estate crash course and exam prep program.

When you join, you get 8+ hours of video content designed to teach you the concepts, vocabulary, historical events, and laws you’ll see on the national real estate exam.

Our exam prep package comes with unlimited practice exams, vocabulary flashcards, an eBook study guide, thousands of question and answer videos, and video explainers.

Get both program together or individually. You can access the real estate crash course videos and prep package using the US Realty Training app.

To join the program, click the button below. Let’s make studying easy!