For part of my livelihood, I buy “distressed property”. One of the things that I pay attention to is the form of deed. That may come as a surprise to you, but this may be more surprising: I factor the deed form into the price that I will pay for any given property. But in my real estate practice, the type of deed rarely becomes an issue. Why is this? I believe that few buyers care what kind of deed they get, as long as they get one. And by the time it gets to someone who does care (ie- an attorney), it’s sort of a done deal.
Normally, every transaction is by Warranty Deed. That is in the fine print of all my contracts and when there is another type of deed involved, I have to remember to make that change. The Warranty Deed is the highest and best form of deed in New York. You can probably figure out that with it, some things are warranted, guaranteed. What are they? They are called covenants and you get five of them:
1) “Seizin” - the owner warrants that he owns the place and has the right to sell it.
2) The owner warrants that he will convey the title free of any liens and encumbrances unless specifically stated in the deed. That way, you can be assured that no one else has any kind of right to the place you are buying. Or, if they do, you will know about it first. An example of the latter is a neighbor having a right to use a spring that is located on the property you are to own. Or a power company who has a line across it, along with the right to maintain that line.
3) The seller guarantees that he will defend your right to the property against potential challengers. That’s important.
4) He warrants the he will obtain whatever legal instruments are needed in order to make the title good. Also important.
5) He further warrants that if any time in the future if the title fails, that he will be liable. This mean he might have to refund y our money.
These are powerful guarantees and I have wondered in the past why any seller would make them if he could get out of it. Well, if he received a Warranty Deed when he purchased the property, then he can go back onto the man (or his heirs) who sold it to him and made the same warrants. And so on down the line. So, with a Warranty Deed, you get a guaranteed chain of owners AND their attorneys certifying that the title is good. If your attorney passes on the title, tells you it is good (as nearly every one is), he assumes a share of the liability if he is later proved wrong. You can sue him for not doing his job. That is one reason why a few attorneys want to tie their fee to the selling price.
There are of course some insurance companies that may be involved along the way. First, the attorney has malpractice insurance. Secondly, you may decide to purchase Title Insurance. This is the only insurance policy that I am aware of that is purchased once and is good for life. You buy it and the insurer will guarantee that they will defend your title to all challengers for as long as you own the property. I believe this carries over to your heirs as well. The fact that a title company will insure it is considered sufficient proof of good title. There are other proofs. Now, if you sell the place, the insurance ends, so I find it does not pay me to buy title insurance on a place I will own for only a year or two. I have purchased it for buyers in rare cases where the buyer’s attorney is not satisfied with the title, but the title company is. Some states and some sellers require the purchase of Title Insurance with every sale. New York is not one of those States.
In second place is the Bargain and Sale Deed (with or without “Covenant Against the Grantor’s Acts”). Another name for this that is used in some other states is “Special Warranty Deed”. This is the form normally used in New York City and I have had several humorous episodes dealing with fancy New York City lawyers who insist that their client get one instead of the Warranty Deed which we had planned on giving. Usually such lawyers are uppity, the kind that think they are so smart since they have a Big City Practice. Then they come crawling back to us asking for a Warranty Deed once they remember their basic law. Local attorneys have shared much quiet laughter with me when we get one of these episodes.
How is a Bargain and Sale Deed different than a Warranty Deed? In it, the owner only implies that he owns the property. There is no actual assurance that the buyer is acquiring title to the property. The owner may (or may not) give a warrant that he has done nothing to encumber the title, but he won’t warrant what might have happened before he owned it. Other than in the Big City, this is mostly used by fiduciaries such as executors, trustees and corporations. It is rarely seen in the country here and I have no idea how it became to be the norm in the Big City. Much legal practice, I have learned, is local norm rather than enacted law.
The other type of deed that is commonly found is a Quit Claim Deed. In my opinion, this is the lowest form of deed out there and, unfortunately for me, it is most often found on the type of property that I am apt to buy for myself. The owner doesn’t even imply that he owns the property. With a Quit Claim Deed, the grantor merely says he will convey whatever interest he has in the property. Anyone can, for instance, give you a Quit Claim Deed to the house you live in, even though they may have never owned it or even set foot in it. But they can convey whatever interest they have, which might be none. Or it may be a real and marketable interest; it’s sort of up to you as a buyer to make sure.
A Quit Claim Deed is often used to clear up a cloud upon the title. When I bought my home here in Sprakers where I reside, I shared an attorney with the seller to save us both some money and to speed up the process. Although he had passed on it when the seller bought the property, the attorney apparently had second thoughts on this round. My new neighbors had been the original owners, many years prior, and he asked them to give me a Quit Claim Deed to the property, which they graciously did. They had known all these years they didn’t own it and would never be able to enforce a claim even if they thought they did, so why rile a new neighbor? It cost them nothing to cooperate and brought me peace of mind and a quieter title. So I ended up with a Warranty Deed from the seller and a Quit Claim Deed from the neighbor. If my neighbors had been greedy folks, they may have demanded a payment from me and then I, along with the seller, would have had to make the call on what it was worth to clear up that particular cloud on the title.
All property conveyed which originated from a tax foreclosure sale is conveyed via Quit Claim Deed. If the municipality did not do their homework correctly, you may have a problem. I have seen this happen before, several times. Once it happened to me. I bought a home at a tax sale, spent a couple of years rehabbing it and finally found a buyer. When I went to convey title, my attorney said that a previous mortgage holder, Beneficial Finance (a misnomer as far as I am concerned), had never signed off on it. “Wasn’t their claim forfeited by virtue of the tax foreclosure?”, I asked. “Well, it was, sort of”, but “sort of” was not good enough for my attorney to put his name on it, he felt I needed to get them signed off. Now you’d think a financial institution would do this as a favor, especially when done for someone who could bring or cost them business. They knew they could never take title to the property and that they didn’t have a snowball’s chance of getting any more income from a loan which had gone south many years before. But not Beneficial. They talked with us about it, again, sort of. Each time my attorney went through their telephone maze, he spoke with a new person who didn’t know a thing about it and wasn’t much interested in learning any more either. So, after realizing this tack was not going to gain us anything, I offered them $500 to sign off. That was roughly what it would cost me to take them to court and force the issue, so I figured it was worth it to me to short circuit the process and speed up the closing, which was now worrying all of us. I had let the prospective owners move in a couple of months ago. My offer led to more conversations with Not-So Beneficial folks who knew nothing about it and cared less. Time passed and finally we realized this was not going to speed anything up or lead anywhere. So, we sued. The court date was set, came and went, and they never even showed up to defend themselves. So we won, handily. ”Now we could have the closing?”, I asked. “As soon as the judge signs off on it”. Well, the judge was in no hurry and it took some weeks before he even looked at it, then he wanted some more documentation from my attorney, then more time passed, still with no signature.
Meanwhile, my buyers got increasingly nervous and finally asked for their deposit back. I didn’t think I could refuse the request, though I tried to persuade them that, after several months, we were only a couple of weeks from closing. They just wanted out. So, with a heavy heart, I offered to return the money, minus a fair rent for the time they had used my home. They blew up over that, seeming to think that they should have had free use of the home. They secured an attorney who after a bunch of fooforaw told them that I was making a fair and reasonable request. Fortunately, it was a local attorney which whom I had a long-standing relationship and had conducted many closings with over the years, so he knew me quite well and knew I was not out to cheat anyone. While this was going on, the judge finally decided to sign and we had the closing, only 6 months late. No longer trusting each other, it took years to gain back my former good relationship with the buyers, a point which both of us now regret.
There are other types of deeds New York, ones we rarely see, Gift Deeds, Guardian’s Deeds, and Sheriffs or Referee’s Deeds. The only one of these that I have come across (so far) in my practice was a lone Sheriff's Deed. I attended a Sheriffs auction for several parcels of land and ended up being the successful bidder on two adjoining woodlots. The price was ridiculously cheap, but it was subject to a mortgage that the previous owner had. In other words, I bought the debt along with the property. That made me a bit nervous, but I figured that even with adding the full debt to the purchase price, I still made a good deal. When I came to take title, the Sheriff’s Department didn’t know how to handle it, no one there had ever done one before. Like I said, these are not common. The sheriff’s team had to get legal advice before they could complete the sale to me. But it was completed properly and next came the time to negotiate with the mortgage holder. Eventually, we settled on a price to buy him out and only then could I feel that I really owned the property, now that it was free and clear of all encumbrances. You may wonder why the mortgage holder, a previous owner, a land subdividing firm, ever negotiated with me on what was legitimately owed to him. I did too and figure that he must have felt that there was a good chance I was never going to pay him and he’d have to go through a foreclosure to enforce his rights, and then he’d only get back something he didn’t really want. While we bargained back and forth, I made very sure that I didn’t make any payments to them (heck, I didn’t even know the terms of the mortgage and what the payments would have been). I was lucky. They were nice to do business with, and we both ended feeling we’d done well.