Author Archives: alexander

Co-op? Condo ? Condop? What’s the difference?

September 11th, 2013 | Posted by alexander in Uncategorized - (0 Comments)

Ownership of real estate in New York City can be one of four distinct legal types – traditional home ownership of a townhouse or three different  forms of ownership for apartments in multi-unit buildings: a co-op, a condo or a condop.

Townhouse (brownstone) ownership is no different from ownership of any traditional single-family or duplex home.  Legally, it’s called “fee simple” ownership and permits the owner ( a single person, a married couple, or a group of people) all of the traditional rights of owning property that you might think of – you can sell the property to whomever  you want (within the confines of non-discrimination laws) and can alter it as you wish (subject to zoning laws or landmark restrictions).

Co-op ownership was traditionally the principal way of owning an apartment in New York City until about 30 years ago when New York caught up with the rest of the nation and permitted the condominium form of ownership.  As a legal matter, when you own a co-op you do not own real estate.  Rather, you own stock in a corporation whose principal (and usually only) asset is the building in which the apartment is situated. Each apartment has stock allocated to it according to the size of the apartment.  As owner of the stock you have right to exclusive occupancy of the apartment to which the stock is allocated, and you are a tenant under a “proprietary lease”.  In many ways this lease is no different from any other residential lease except that it does not have a finite term of occupancy. Rather, the right to occupy the unit lasts for such time as you remain a stockholder in the co-op corporation.

As does any corporation, the co-op operates under its by-laws which in most cases requires the board of directors to approve any new owners of shares so that all purchasers need to be approved, most usually after submission of financial information and an interview. The board (answerable to the shareholders) generally sets the minimum financial requirements for ownership, although all of the stockholders could be asked to approve changes at a shareholders meeting.  A board can reject a purchaser for no reason or for any reason at all, except for legally prohibited reasons (e.g., race or religion).  However, since a board is not currently required to articulate reasons for rejection, it’s often difficult to determine if a rejection was, in fact, legal.

Because a co-op shareholder does not own real estate, he pays no real estate tax to the city. Instead, the co-op corporation as the building owner pays tax on it and then allocates the tax among all of the apartments based on shares owned.  The allocated charge is then included in the monthly maintenance charge for the apartment.   At the end of the year each shareholder receives a statement of the real estate taxes paid and obtains a deduction against income.    If the corporation has a mortgage on the building, it also allocates the interest paid on the mortgage to each stockholder/tenant.  These interest charges are included in the maintenance and reported to the shareholder at tax time so that he can take the appropriate tax deductions. The shareholder can, of course, also deduct any interest on his own mortgage.

Several financial consequences arise from the fact that cooperative ownership is not ownership in real estate.  First –and all else being equal – co-ops generally sell for less than condos because of the restrictions traditionally imposed on sales of co-op shares by the boards of directors.  These restrictions often result in a built-in market discount of price because the pool of purchasers acceptable to the board is somewhat restricted, and a portion of potential purchasers just won’t pass muster. Even those that may be acceptable to the board often self-select and don’t even shop for a co-op because of the intrusive nature of the approval process.  On the other hand this is not always the case as many purchasers actually seek the exclusivity of a co-op ownership.   Second, when purchasing a co-op a buyer need not purchase title insurance (although there may be reasons for doing so).  Instead, he relies on the title insurance held by the corporation which insures the entire building as a single entity.  Third, many banks charge a higher interest rate for mortgages on co-ops.  They do so because in the event of default and a foreclosure, the coop boards’ restrictions on sales may make recoupment of the bank’s loss that much more difficult than it would otherwise be.  Fourth, there is no mortgagee recording tax on co-op mortgages because these are not mortgages on real estate to which the tax applies. The tax savings can be substantial, especially on mortgages of $500,000 or more where it is assessed at $2.80 per $100 of mortgage amount (a small portion of the tax is actually paid by the lending institution).

As distinct from co-op ownership, condo ownership is, in fact, ownership in real estate.  The purchaser actually owns his individual unit.  As well, he owns a percentage of all parts of the building which are used in common by all unit owners, such as the lobby, elevators, hallways and amenities such as a gym, pool or rooftop terrace.  As a real estate owner you pay real estate taxes assessed directly on your property so that unlike a co-op there is no real estate tax element included in your monthly common charges.  This often results in lower monthly charges for condos than for co-ops.  Also,  for various reasons condos generally have no  mortgage or only a small mortgage on the underlying building so that there is  no  allocated mortgage interest charge included in your  monthly common charges.  An exception to this occurs where a condo association owns the superintendent’s apartment, in which case it may be mortgaged, with the debt service costs being allocated to the individual owners.

Like a co-op, a condo is managed by a board, but it is called a board of managers rather than a board of directors. The board is answerable to the Condominium (or Homeowners) Association in which all unit owners are members with an equal vote.

For the reasons alluded to in the above discussion of co-ops, market  prices of condo apartments relative to co-ops are often  higher, and closing costs include mortgage recording taxes and premiums for title insurance,  which can be costly items (especially the mortgage recording tax). Like co-ops, condos operate by their by-laws.  These are traditionally- but not necessarily- less restrictive on sales than are the by-laws of co-ops.  Condo boards typically do not have the right to reject a purchaser, but almost universally require the submission of financial statements and, sometimes, even an interview.  Instead of rejection, Condo boards can prevent a sale by what is known as a right-of-first refusal. This allows the board a period of up to 30 days to match a purchaser’s offer to buy a unit and, by doing so, prevent a sale to an “undesirable”.  But to exercise its right the board on behalf of the condominium association has to come up with the money to buy the unit at the same price and on the same terms and conditions as the applicant-purchaser. These rights-of-first-refusal are virtually never exercised because of the cost and complexities involved, but it has been known to happen.

A condop is a hybrid of a co-op and condo. The term is used to describe two different concepts. One is a purely legal description where a building is conceptually (and sometimes physically) divided into a condo portion and a co-op portion. Typically this occurs where there are residential units in a tower portion of a building and retail or institutional spaces (for example, a school) at the lower levels.  Ownership in the retail or institutional portion might be retained by the developer in a condo form while the residential units are owned by a co-op corporation all the shares of which initially are owned by the developer and sold to individual purchasers of units. The respective management boards of the condo and co-op portions are represented on a master board of directors of the two units.

The second use of the condop appellation is a short-hand description of an entity legally structured as a co-op which has adopted by-laws resembling those of a typical condo association.   Often, buildings with land-leases (i.e., the building actually sits on land owned by a third party and pays rent to the owner of the land) are condops because under New York’s condominium law  a condo cannot lease the land on which it is situated but must own it.  Where the underlying land is not owned the entity adopts the co-op legal structure but operates as a condo under condo rules.  The principal operating distinction is that the co-op’s rules relating to the resale of units are not nearly as restrictive as a co-ops and the board has no right to blackball a prospective purchaser.  Rather, the board instead has the right-of-first–refusal typical to a  condominium.

Landlords use lease assignment provisions to maintain control over the quality, composition, and financial capability of their tenants. However, assignment provisions can have a chilling effect on a corporate tenant’s business operations and ownership structure. In this article, we explore the various pitfalls that corporate tenants should avoid when negotiating and drafting assignment provisions in commercial leases.

Most assignment provisions in commercial leases restrict two types of circumstances. The first is the proposed assignment of a lease to an unrelated third party or to an affiliate company of a corporate tenant. The second is the deemed assignment of the lease by operation of a change in control or ownership of a corporate tenant.

As a general rule, in the absence of a specific provision in a commercial lease restricting assignment, a tenant is free to assign its lease to a third party without notifying the landlord or obtaining the landlord’s prior approval. However, most modern commercial leases contain assignment provisions that either prohibit or restrict the circumstances under which a tenant may make an assignment of its lease. Provisions that restrict assignments require tenants to obtain the landlord’s prior consent to an assignment of the lease. Courts in New York State have consistently held that if an assignment is conditioned upon the landlord’s prior consent, the landlord may arbitrarily withhold its consent to the assignment unless the lease states to the contrary.[1]1 To prevent a landlord from arbitrarily withholding its consent to a lease assignment, a tenant should negotiate and include a provision that states that the landlord shall not “unreasonably withhold, condition, or delay its consent” to a proposed assignment.

Even in those instances where a commercial lease assignment provision prohibits the landlord from unreasonably withholding its consent to a proposed assignment, the landlord’s consent will generally still be conditioned upon the satisfaction of certain conditions. These conditions typically include, but are not limited to, information regarding the proposed assignee and its use of the premises, copies of the proposed assignee’s financial statements, the payment of additional rent or security if the landlord approves the assignment, execution of an assignment and assumption agreement by the proposed assignee, and payment of the landlord’s attorney’s fees in connection with document review. Additionally, landlords often require that the assignor-tenant remit to the landlord all monies or assignment profits that the assignor-tenant receives from the assignee-tenant. The calculation and division of any such assignment profits is a matter of negotiation between the parties. However, the lease should provide that the assignor-tenant’s brokerage costs, expenses expended to ready the premises for the assignee-tenant’s occupancy, and its attorney’s fees be deducted from the amount of the assignment profits that the assignor-tenant is required to pay the landlord under the lease.

In addition to restricting assignments, commercial leases often contain recapture provisions whereby if a tenant requests the landlord’s consent to a proposed assignment of the lease, the landlord has the option of recapturing the leased premises and terminating the lease. If a tenant is not able to exclude the landlord’s recapture right, it is advisable to negotiate and include a specific provision in the lease giving the tenant the option to revoke and rescind its original request to assign the lease if the landlord exercises its recapture right thereby allowing the tenant to remain in possession of the premises and negating the effect of the landlord’s recapture election. This rescission right provides a tenant the flexibility to stop the recapture process depending upon the particular facts and circumstances and commercial exigencies of the tenant.

A well-drafted commercial lease assignment provision should expressly exclude transfers of the lease to an affiliate of the tenant from the restrictions of the assignment approval process. The definition of a tenant “affiliate” should be as broad as possible and include all entities related to the corporate tenant to provide maximum flexibility. Additionally, if the tenant contemplates transferring the lease to a specific entity in the future, it is advisable to incorporate this right into the text of the lease to avoid the assignment approval process and the landlord’s right of recapture.

With regard to change in control provisions, courts in many states including New York have consistently held that a transfer of a controlling shareholder’s ownership interest in a corporate tenant does not violate basic assignment provisions, which merely state that the lease may not be assigned without the landlord’s prior consent.[2]  The rationale behind these holdings is that a landlord entering into a lease with a corporate tenant should be aware that a corporation is an entity that exists separately from its stockholders and that a change in the ownership structure of a corporate tenant does not result in a change in the actual tenant entity that signed the lease. Consequently, if a landlord desires that a change in ownership or control of a corporate tenant be deemed a lease assignment, the lease must explicitly state so. Many commercial leases contain comprehensive anti-assignment provisions aimed at restricting changes in ownership and control of a corporate tenant. These provisions deem certain actions, such as the transfer of the corporate tenant’s stock, changes in the management or decision making of a corporate tenant or the sale of the corporate tenant’s assets to be assignments of the lease, which require the prior written consent of the landlord and trigger the landlord’s recapture rights.

If a corporate tenant effectuates a change of ownership or control of the tenant entity that is prohibited by the assignment provisions of the lease without obtaining the prior written consent of the landlord, the consequences can be devastating. Once the change of change of ownership or control of the tenant entity occurs and the tenant has failed to obtain the written consent of the landlord, the tenant may have committed an incurable default under the lease. If the lease contains a conditional limitation provision and the landlord discovers that a prohibited change of ownership or control of the tenant entity has occurred, the landlord can serve a notice to cure the default upon the tenant and if the default is not cured within the stated cure period, the landlord can simply terminate the lease. Depending upon the particular facts and circumstances, the corporate tenant may not be able to reverse the change of ownership or control of the tenant entity that has occurred in order to cure such default, which could then lead to the termination of the lease and forfeiture of the tenant’s entire leasehold estate. To avoid the draconian consequences of an incurable lease default, a corporate tenant should strive for clarity and precision in drafting change in control provisions.

By way of example, assume that Corporation X is a tenant under a commercial lease whose voting stock is owned 30 percent by Corporation A and 70 percent by Corporation B. Assume also that Corporation E owns 60 percent of the voting stock of Corporation B and that Corporation F owns 40 percent of the voting stock of Corporation B. If the lease contains an assignment provision that merely prohibits an assignment of the lease without the landlord’s prior written consent, then Corporation A and Corporation B may transfer and assign their respective shares in Corporation X to each other or to any third party without violating the terms of such assignment provision.

However, if the lease contains an assignment provision providing that any change in control of the tenant entity shall be deemed an assignment under the lease, then the transfer by Corporation B of 21 percent or more of its ownership interest in Corporation X to Corporation A or Corporation B’s transfer of 21 percent or more of its stock ownership in Corporation X to a third party would be deemed an assignment under the lease, if the term “control” is deemed to mean 51 percent or more of the voting stock of an entity.

Courts have generally held that lease assignment provisions that merely state that a change in control of the tenant entity shall be deemed an assignment only restrict transfers of stock ownership at the first level of ownership of a corporate tenant. Thus, in the foregoing example, a change of control of Corporation B would not be deemed an assignment under the lease. However, if a lease states that any “direct or indirect” change of control of a corporate tenant shall be deemed a prohibited assignment under the lease, then the transfer by Corporation E of 11 percent or more of its ownership interest in Corporation B to Corporation F or the transfer of 11 percent or more of its stock ownership in Corporation B to a third party would be deemed an assignment under the lease requiring the landlord’s prior consent. While New York courts have consistently held that a change in the indirect control of a corporate tenant will not be deemed a lease assignment unless the lease states so, it would behoove corporate tenants to negotiate and obtain a specific carve-out in the anti-assignment provisions stating that indirect changes in control of the tenant entity will not be deemed assignments under the lease, to avoid any confusion or applicability of anti-assignment provisions to these situations.

When drafting lease assignment provisions, tenants should clearly define the terms “control” and “change of control.” In doing so, a corporate tenant will help ensure that the correct determination is made in the future as to whether or not a proposed corporate reorganization or stock transfer will be deemed an assignment under the lease requiring the landlord’s prior written consent and/or triggering the landlord’s recapture rights. Further, the general criteria applicable to the granting of landlord’s consent in lease transfer situations should be tailored to exclude certain criteria that are inapplicable to change of control situations, such as the requirement that a corporate tenant pay an assignment fee or assignment profit to the landlord, an evaluation of the general reputation of the assignee, submission of the financial statements of the assignee, execution of an assignment and assumption agreement, and, if possible, the landlord’s recapture option.

In conclusion, in an ever-changing economic environment, commercial tenants may be forced to make certain decisions regarding their corporate structures and leases. In order to maintain the maximum flexibility and predictability, it is very important that special attention be paid to negotiating and including comprehensive language and exceptions to the anti-assignment provisions found in most modern commercial leases. The consequences of vague or incomplete lease assignment provisions for a corporate tenant could prove not only problematic, but in certain circumstances, a commercial and legal disaster.

[1]  See Kruger v. Page Management Co., 105 Misc. 2d 14 (N.Y. 1980).

[2]  See Rubenstein Bros. v. Ole of 34th Street, Inc., 101 Misc. 2d 563 (N.Y. Civ. Ct. 1979), citing: Ser-Bye Corp. v. C.P. & G. Markets, 78 Cal App 2d915; Burros Motor Co. v. Davis, 76 A2d 163; Alabama Vermiculite Corp v. Patterson, 124 F. Supp 441.

Representations and Warranties in a Contract

January 29th, 2013 | Posted by alexander in Real Estate - (0 Comments)

Representations and Warranties in a Contract

Every contract has representations and warranties, which are basically the underlying matters or facts as they are being presented in terms of the contract.

When a contract uses the terms “representations” and “warranties” together, they blend the past, present, and future together within terms of the contract. Every contract is different, but the language is basically the same. Representations and warranties are assurances that one party gives to another party in a contract. These assurances are statements that the purchasing party can rely on as factual.

It is important, however, to define the terms “representation” and “warranty” because they often are incorrectly used as synonyms.  Black’s Law Dictionary defines a “representation” as a “presentation of fact . . . made to induce someone . . . to enter into a contract.” Black’s Law Dictionary 1327 (8th ed. 2004).  On the other hand, a “warranty” is defined in terms of contracts as “[a]n express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties.” Black’s Law Dictionary 1618 (8th ed. 2004).

Black’s Law Dictionary states that “[a] warranty differs from a representation in four principal ways: (1) a warranty is an essential part of a contract, while a representation is usually only a collateral inducement; (2) an express warranty is usually written on the face of the contract, while a representation may be written or oral; (3) a warranty is conclusively presumed to be material, while the burden is on the party claiming breach to show that a representation was material; and (4) a warranty must be strictly complied with, while substantial truth is the only requirement for a representation.”

A warranty generally moves from the present to the future. The product that you are buying is warranted as being free of defects, and the company agrees to fix any defects for a specified amount of time into the future.

Warranties can be either expressed or implied. Expressed warranties mean they are written into the contract, and, for the most part, buyers should insist upon them.  Implied warranties fall under the Uniform Commercial Code, which in all sales of goods implies that there be a “fitness for a particular purpose.”  Legally within contracts, expressed warranties hold up better in a court of law than implied warranties.

The seminal case was CBS Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496 (1990). In that case, Ziff-Davis “represented and warranted” the financial condition of the division it was selling to CBS.  CBS, however, as part of its due diligence, sent in its own accountants to review the division’s financial statements.  They reported that the financial condition was not as represented and warranted.  The parties closed anyway, and then CBS sued.

In New York’s highest court, the issue was whether CBS had a cause of action for breach of warranty.  Ziff-Davis argued that CBS did not because it had known about the problems with the financial statements and had not justifiably relied on the warranties.  Stated differently, Ziff-Davis argued that the standards for a cause of action for a fraudulent misrepresentation and a breach of warranty both required justifiable reliance on the truthfulness of the statement.  Ziff-Davis lost.

According to the Court, a warranty is a promise of indemnity if a statement of fact is false.  A promisee does not have to believe that the statement is true.  Indeed, the warranty’s purpose is to relieve a promisee from the obligation of determining a fact’s truthfulness.

Generally, commercial real estate Purchase and Sale Agreements contain specific representations and warranties, disclosing certain facts about the parties and the subject property.  Obviously, given the liability of either misrepresenting or failing to represent material facts, these “reps & warranties” are often subject to great scrutiny and negotiation.

Naturally, Buyers will want the Seller to paint as full of a picture as possible about the status of the property, its history and any known defects/claims.  While sellers want to say as little as possible and ensure that the buyer will perform its own investigation.

Nevertheless, while great attention often gets focused on whether a party is willing to give a particular rep, often easily overlooked are basic principles concerning the scope, survivability and timing of these representations. This can of course either be intentional or a victim of poor “legal representation.”

When we work with these agreements, we strive to address a number of considerations beyond the mere giving of any “reps”.  Some important considerations for both Buyers and Seller include: When must the representation be true? (at the time made? As of the closing? both?); requirement to update the representations or disclose changes? Investigating the representations – Is there a duty of inquiry on the part of the party giving the “rep”?  Knowledge on behalf of the person giving the rep? is the knowledge imputed to the entity as a whole? Damages (is there a cap on the overall damages from the failure of a representation? Is there exposure for consequential damages? Punitive damages?); survivability (Do these reps only matter until closing? What is the post-closing liability? How long does it last?)

Without careful consideration and drafting, these provisions can undermine the intended purpose and create more uncertainty (and liability!) than clarity.

More than just focusing on whether an agreement will include a given rep, we help buyers and sellers understand their liability and the big picture regarding the giving (or not giving) of particular representations and warranties.

For further advice and the best possible representation, please do not hesitate to contact us.

Now is the Time to Buy!

January 28th, 2013 | Posted by alexander in Real Estate - (0 Comments)

As recently written on CNN Money, economists say this could finally be the year that housing lifts us out of the doldrums.

“Just over half of economists surveyed by CNNMoney identified a housing recovery as the primary driver of economic growth this year.

Homebuilding activity will likely remain the strongest growing component of the economy in 2013,” said Keith Hembre, chief economist of Nuveen Asset Management. “After several years of excess supply, demand and supply conditions are now in much better balance.”

Home sales rebounded to the strongest level in five years in 2012, as home building bounced back to levels not seen since early in the recession. Near record low mortgage rates, rising home prices and a drop in foreclosures have combined to bring buyers back to the market.

There’s a lot of pent-up demand for housing, and very little supply,” said Celia Chen, housing economist for Moody’s Analytics.

And economists say the tight supply and renewed demand for housing should lead to higher home values — about a 3.7% increase according to the survey.”

What does this mean for the average consumer?  Now is the time to buy!

And, after choosing the right house to purchase, the next most important decision is retaining an experienced attorney to help you close the deal.  Inevitably issues come up in every real estate transaction that have the potential to kill the deal.  Make sure you have the experienced attorneys at Alexander M. Fear, P.C. representing your interests so that you don’t let the house of your dreams get away.  Call us today.

OCR Settles HIPAA Violations with Small Physician Practice

In 2012, on the heels of its $1.5 million settlement with a large payor, Blue Cross Blue Shield of Tennessee, the Department of Health and Human Services Office for Civil Rights (OCR) announced on April 17, 2012, that it settled with a small physician practice for HIPAA safeguard violations. Phoenix Cardiac Surgery, P.C., a practice owned by two physicians, entered into a settlement agreement and agreed to pay $100,000 after OCR found the practice posted unsecured calendar appointments and sent unsecured emails.

Over a year-and-a-half period, the practice posted 1,000 entries of ePHI on a publically accessible, Internet-based calendar. In addition, over three years the practice transmitted ePHI on a daily basis over an Internet-based email account to workforce members’ personal Internet- based email accounts.

OCR, after investigation of a complaint, found that the physician practice failed to:

  • Implement adequate policies and procedures to appropriately safeguard patient information
  • Document that it trained any employees on its policies and procedures on the HIPAA Privacy Rule and Security Rule
  • Identify a security officer and conduct a risk analysis
  • Obtain business associate agreements with Internet-based email and calendar services where the provision of the service included storage of it ePHI and access to its ePHI

Along with the $100,000 payment to OCR, the practice also agreed to enter into a corrective action plan (CAP) requiring that it develop, maintain and revise written HIPAA policies and procedures and submit them to OCR for approval prior to implementation.  Within 30 days of OCR approval, the practice must implement these policies and procedures and distribute them to its workforce members.  Within 60 days of OCR approval, the practice must provide training to all workforce members.  The CAP also requires that the practice assess, review and revise its HIPAA polices and procedures at least annually or more frequently, as appropriate.  Should any additional violations occur related to its HIPAA polices and procedures, the practice must submit a report directly to OCR within 30 days from its determination of a violation, including: a description of the events, persons involved, actions taken to mitigate any harm and any further steps the practice plans to take to address the matter and prevent the violations from happening again.

In a press announcement, Leon Rodriguez, Director of OCR emphasized, “We hope that health care providers pay careful attention to this resolution agreement and understand that the HIPAA Privacy and Security Rules have been in place for many years, and OCR expects full compliance no matter the size of a covered entity.” Small physician practices should take note that they are not immune to OCR investigation.

Real Estate Transfers, Deeds

January 18th, 2013 | Posted by alexander in Real Estate - (0 Comments)

A deed is a document which indicates who owns a particular piece of real estate, from whom the person acquired their interest and a legal description of the property.

When the property is being sold, willed, given to another party other than the current owner, or otherwise transferred, the deed is being legally transferred from its current owner to a new owner.  The law requires that a transfer of real property be done in writing.  (Without a writing executed by the party to be bound, the transfer generally will not be enforced by a court of law.)

Prior to the actual transfer of real property from the Seller to the Purchaser, however, the Purchaser generally engages a title company to search the public records for any problems which may affect title to the property.  According to the American Land Title Association, 26 percent of title searches reveal an issue that must be corrected before purchasing the property. If these issues go uncorrected, they can pose big problems for the purchaser.  Title issues that come up with some degree of frequency include liens, unresolved foreclosure issues, violations which became liens or judgments, missing ownership interests and even fraudulent conveyances.

When dealing with title issues and deed transfer issues or disputes, the attorneys at the Law Office of Alexander M. Fear, P.C. have the legal knowledge and experience to uncover problems (whether you are the purchaser or the seller) and resolve them before they kill a deal.  It is important, however, to get experienced counsel involved early; waiting too long could mean the difference between a successful closing and a busted closing followed shortly thereafter by litigation.

The most common types of deed transfers are:

General Warranty Deed

The general warranty deed provides the greatest conveyance and protection to the grantee because it includes warranties or covenants that the seller conveys with the title.

Warranty of Title

Covenant of seisin: the grantor warrants the title that is being conveyed to the grantee. If the title proves to be defective, the grantee can sue for damages.  The following warranties can be construed as being corollaries of the covenant of seisin.

Covenant of quiet enjoyment: the grantor guarantees that the title is superior to any other claims by 3rd parties. If someone succeeds in establishing a superior claim, then the grantor will be liable to the grantee for the damage.  In fact, the “covenant of warranty forever” is the guarantee that the title will always be good, and that the grantor will compensate the grantee if it is later found that the title is defective.  If the title defect is something that the grantor may cure, then the “covenant of further assurance” requires that the grantor do whatever is necessary to clear the title.  Thus, if the grantor’s spouse had dower or curtesy rights to the real estate, but did not sign the deed, then the grantor may obtain a quitclaim deed to clear the title.

Warranty Against Encumbrances:  The covenant against encumbrances is the only warranty that does not cover the title in some way, but guarantees that the only encumbrances to the land, such as mortgages, mechanics’ liens, or easements, are those that are listed in the deed.  If, later, it is discovered that there was an encumbrance when title was transferred that was not listed in the deed, then the grantor is liable for the amount to have the encumbrance removed.

Special Warranty Deed

A special warranty deed guarantees less than the general warranty deed:   that the grantor received title, and that there were no encumbrances other than what is listed in the deed while the grantor held title.  The special warranty deed is usually conveyed with the phrase Grantor remises, releases, alienates, and conveys.  There is no guarantee against title defects or encumbrances that may have been present when the grantor received the property, nor does it obligate the grantor to do anything further once the title is transferred.

Special warranty deeds are frequently used by temporary holders of real estate, such as trusts, or other fiduciaries, or corporations, who do not use or occupy the land for their own benefit.  Often, the special warranty deed is issued when the real estate is sold in a tax sale.

Bargain and Sale Deed

The bargain and sale deed has no guarantee that the land being sold is free of encumbrances—the only implication is that the grantor has title, and not one that is necessarily free of defects.  The bargain and sale deed is most often the deed that is transferred from a foreclosure or tax sale—hence, the name.  Since the grantor, usually a bank or tax authority, did not occupy the land, it would not necessarily know of any encumbrances that may have been attached to the land by the previous owner, and, thus, the grantor does not want to guarantee against any encumbrances.  Generally, the bargain and sale deed are conveyed with the words that grantor grants and releases or grants, bargains, and sells.

Quitclaim Deeds

The quitclaim deed carries no warranties at all—it only conveys the interest that the grantor had in the property, whatever that may be. The real estate interest may be full title, but the grantor makes no guarantees of it.

The quitclaim deed is used in those cases where the grantor does not want to assume further liability, or feels no need to guarantee title, such as when a family member transfers title to another family member or the grantor is only transferring some of his rights and not conveying a fee simple estate.  A quitclaim deed is also used to cure a title defect, such as a misspelled name on the deed.  The quitclaim deed is also used when the grantor’s title is not clear.  For example, if the grantor inherited the property, but wants to sell it for the cash, she doesn’t want to guarantee something that cannot be known with certainty, and, thus, to limit her liability, she sells only her interest in the property—whatever it is.  If the title later proves defective, or, if the grantor did not even own the property, but only thought that she did, the grantee of the quitclaim deed has no legal recourse against the grantor of the quitclaim deed.

Deed of Trust, Reconveyance Deed, and Trustee’s Deed

Since property can be conveyed through a trust, there are 3 different types of deeds associated with trusts, depending on the grantor and grantee.  The trustor is the creator of the trust, the beneficiary is the party benefiting from the trust, and the trustee is the fiduciary administering the trust for the trustor.

A deed of trust (a/k/a deed in trust) is a deed that conveys title from a trustor to the trustee for the benefit of the beneficiary.  A deed of trust is often used in lieu of a mortgage, when the borrower, the trustor, transfers the deed to a trustee as security for the loan given by the lender.

A reconveyance deed is a deed conveying title from the trustee back to the trustor, such as when the trustor pays off the loan that was secured by the real estate.

A trustee’s deed is a deed conveying title to another party who is not the trustor.  In most cases, this would be the beneficiary. The deed must state that the deed was executed according to the terms of the trust.

Court-Ordered Deeds

State statutes stipulate the different kinds of deeds that are executed pursuant to court order: deeds by administrators and executors, sheriff’s deeds, and other types of deeds that are executed without the consent of the owner or through a will.  Most court-ordered deeds also list the actual price of the real estate as consideration.