Good Deeds, Bad Deeds and Colorado Property Deeds
One of the more significant changes coming to the Colorado Commission Approved Contract to Buy and Sell (“CBS”) in January 2019, relates to Paragraph 13 (“Transfer of Title”) of the form. For many years, Paragraph 13 of the CBS has included a ___________ (blank) prior to describing the type of deed that seller would deliver to the buyer at Closing. In residential transactions, this “blank” has almost universally been completed with the word “general” without any discussion or negotiation between the parties.
Beginning January 1, 2019, the new CBS will default to a “special” warranty deed if no other type of deed is specified by a box that will be checked below. The boxes to be checked, if agreed to by the parties will include: general, bargain and sale, quit claim, personal representative’s deed, or _______ “blank” (other).
In Colorado, the only statutory forms of deeds that are acknowledged are the general, special, bargain and sale, and quit claim. Other deed types sometimes referenced (personal representative, beneficiary, trustee, conservator, etc.) are typically just a bargain and sale deed in form and substance.
Based on the new modifications to Paragraph 13 of the CBS, I believe there may be more discussion and negotiation related to the type of deed that is ultimately contracted for between and buyer and seller in a residential transaction. As such, I thought it would be helpful to describe each of the four basic Colorado deed “types” and what each type of deed may mean for a buyer or seller.
First, it is important to clearly understand that EACH OF THE DEED TYPES TRANSFER THE EXACT SAME INTEREST IN A PROPERTY FROM THE BUYER TO THE SELLER. The difference between any of the deed types is exclusively related to the warranties or guarantees that a seller makes to a buyer regarding the quality of title. I also want to point out that, for simplicity sake, I will be using the terms “seller” and “buyer” (rather than the more accurate “grantor” and “grantee”) throughout this document.
General Warranty Deed
A general warranty deed has been, for many years, the traditional deed that has been offered in a residential transaction in Colorado. It is typically considered the “strongest” form of deed based on the expansive warranties that a seller makes to a buyer in conveying title to a property. Subject only to any specifically listed exceptions or encumbrances on the deed, the seller warrants the buyer’s title to the property all the way back to the property’s origin. In short, regardless of whether an encumbrance to title was created by the seller, or some remote previous owner of the property, the seller is warranting to the buyer that they will defend them against any claims on that title. Period.
Special Warranty Deed
Effective January 1, 2019, a special warranty deed will be the new “default” deed in the CBS. Unless another form of deed box is checked, the seller will be contractually obligated to deliver a special warranty deed to the buyer at closing. Special warranty deeds have been the common form of deed used in commercial real estate transactions for many years but, for a variety of reasons, they have been very rare in Colorado residential transactions over the years.
A seller, when giving a special warranty deed, warrants the buyer’s title to the property only against any encumbrances on the property that were created DURING THE PERIOD OF THE SELLER’S OWNERSHIP OF THE PROPERTY. As with the general warranty deed, the seller’s warranty is limited by any specifically listed exceptions to the conveyance.
In short, the distinction between the two forms of “warranty” deeds is that in a general warranty deed, the seller warrants against anything any owner of the property ever did to encumber title and in a special warranty deed the seller only warrants against anything the seller did to encumber title.
Bargain and Sale Deed
A bargain and sale deed is typically NOT a warranty deed (unless specific warranties are expressed on the deed itself). Therefore, in most cases, the seller is making no warranties as to the quality of title or existence of any encumbrances/exceptions on the property. The seller is essentially giving the buyer whatever title the seller currently has and, importantly, LATER ACQUIRES in relation to title on the property. Bargain and sale deeds are uncommon in a typical residential conveyance. Often, a bargain and sale deed is the statutory form of a deed that may be more commonly referred to as a personal representative’s deed, treasurer’s deed, trustee deed, or guardian deed. The deed is typically signed by some third-party fiduciary or government official.
Quit Claim Deed
A quit claim deed is the simplest form of deed in that it is NOT a warranty deed and it merely conveys whatever interest the seller CURRENTLY has in the property, to the buyer, with no additional warranties or representations whatsoever. It merely transfers the title of the real property, including any defects or encumbrances, from one party to another. Quit claim deeds are often used in intra-family transfers, to add or remove someone from title, or to convey a property from individual ownership to a newly created trust or other entity. This is not to say that a quit claim deed couldn’t be used in a traditional sales transaction if it was, for some reason, the negotiated agreement of the buyer and seller.
Colorado REALTORS® need to clearly understand that the selection of the type of deed used in a sales transaction is for the negotiation of the parties (buyer & seller). As should be clear from this summary, there are very important legal consequences to the type of deed that a seller agrees to give, and a buyer agrees to receive in a contract. I believe that insufficient attention has been given to the selection of deed form for too many years. This is particularly the case in residential transactions. Title insurance may provide some protections for potential warranty perils, but it is not a complete solution. As always, Colorado REALTORS® need to remind their clients that they should be consulting appropriate legal counsel if they have specific questions related to the type of deed they will be giving or receiving in a transaction.