A bargain and sale deed doesn't warrant against any encumbrances. It simply implies that the grantor holds title to the property. The grantee—the individual receiving title—effectively inherits any and all liens that might exist against the property when he takes title.
A bargain and sale deed is much like a quitclaim deed in this respect. It conveys property, but it makes no guarantees that no one else has a stake in that property. It's unlikely that title insurance will cover this type of deed absent some warranties.
When Is This Deed Used?
This type of deed is generally used in tax sales, estate sales, and foreclosure actions. The bank or taxing authority might have full knowledge of the property's or previous owner's past and will not go out on a limb and make any guarantees.
Even under these circumstances, however, these deeds aren't common in all states. You're most likely to encounter bargain and sale deeds in Western states, including Colorado, Wyoming, and Washington. They're sometimes used in New York or Vermont as well.
Components of a Bargain and Sale Deed
Warranties can be conveyed in bargain and sale deeds if they're specifically stated. It's optional. Nothing says that such a deed cannot offer one or more warranties.
Otherwise, a bargain and sale deed typically records just the basics of a transaction: the date it occurred, the names of the buyer and seller, how much was paid for the property, and its legal description. It will cite the conveyance, usually with the words, "Grantor grants, bargains, and sells..." or "Grantor grants and releases..."
With or Without Covenants?
Any covenants must be clearly stated in the deed—they cannot be implied. A common covenant is that there are no outstanding liens or encumbrances against the property, so don't assume that you're not covered against this eventuality if you're presented with such a deed. Read it over carefully, or have an attorney review it so you know exactly what you're getting into.
Research the property if possible. You'll want to be alert to some common encumbrances so you know what to look for.
Some Common Defects
Cities, counties, and sometimes states will tax real estate. Failure to pay these taxes will ultimately result in a lien being placed on the property. A tax lien can be sold to an investor who could then foreclose on the property.
First mortgages take precedence over second mortgages or home improvement loans, but property taxes take precedence over the mortgages in most cases.
Homeowner Association Dues
Dues paid to homeowner associations are recorded obligations at the local courthouse. Failure to stay current will inevitably result in a lien on a property and possible foreclosure at some point. The lien must be paid off as a part of the closing transaction when the property is sold.
Condos are different in that there are common areas you don't own, but you're nonetheless liable for fees and assessments to maintain them. Failure to pay these fees and dues can also result in a lien.
Homeowner Association Rules and Restrictions
Subdivisions and homeowner associations have rules, covenants, and restrictions. Sometimes they can be really thick documents with rules for everything from lawn care to the color of roofs. Repeated violation of these rules can result in a lien on the property for accumulated fines.
Mechanics or Material Liens
You'll probably find a lien filed on a home if the previous owner had repairs, equipment replacement, or major work done and she did not pay as agreed. These liens rarely become a threat to ownership, but there could be a really big chunk of cash due when you ultimately sell and close on the deal if they're accumulating interest.
Income Tax Liens
A homeowner will find liens against himself and probably his home as well if he falls far behind in paying income taxes. The government gets its share first if you later try to sell, and interest and penalties can mount.
Municipal Fees and Assessments
Those trash and sewer fees can bite you if they weren't paid. They're typically owed to a government or quasi-government entity. Sometimes a municipality will assess owners for new sewer systems or sidewalks. The homeowner gets a bill in the mail, and he must pay it or a lien will eventually be placed against the property.
This is rare, but it can be a very big problem. Your home might be part of an older neighborhood that's in the way of a new county sports stadium. Suddenly, you're forced to sell the property you've purchased, and you're told the price you'll receive. You must vacate because the wrecking ball is coming.