There are many different labels that are typed at the top of the most important piece of paper delivered at a real estate closing alongside the word “deed”: warranty deed, quitclaim deed, foreclosure deed, trustee’s deed, fiduciary deed, release deed. There are others, but those are the most common. In New Hampshire, as elsewhere, the use of a foreclosure deed has seen a dramatic increase. What is it and how does it affect the transfer of real estate?
To understand a foreclosure deed, it may help to begin with an understanding of the purpose of a real estate deed. Many people compare their deed to the title to their car. As the date of the sale of their home approaches, they look frantically in old boxes in the attic to find the deed delivered to them when they bought the home. They believe they have to give it to the buyer at the closing. This is how a car is sold. The seller uses the original title to transfer the ownership of the vehicle to a buyer. Real estate is different and although that original deed to the home is an important document, it is not necessary to find it to sell the home to the new buyer.
Since real estate cannot be physically transferred, a deed which physically describes the property on the ground is prepared, signed by the seller in front of a notary public, and delivered to the buyer. As part of the closing process, the title company responsible for the closing researches the history of the ownership of the property by reviewing the public records at the appropriate registry of deeds. A new deed is prepared with the current owner granting the property to the buyer. The act of signing and delivering the deed transfers legal title to the real estate. In a typical sale, the real estate is transferred by a “warranty deed.” If no money is paid, the deed may be identified as a “gift deed.” If the property is transferred from a trust, the deed would be a “trustee’s deed.” If the property is owned by an estate, the executor or administrator of the estate would deliver a “fiduciary deed.”
A foreclosure deed, unlike most other deeds, is not a voluntary transfer of the property. Rather, it is a deed by which a lender takes title to the property away from someone who borrowed money and pledged the real estate as security for the loan in a mortgage. When the borrower stopped paying, the lender exercised its rights under the mortgage to foreclose and sell the property at auction. If the auction sale does not generate the minimum price that the lender requires, the foreclosure deed conveys the property to the lender. Otherwise, the foreclosure deed will transfer the property to the highest bidder at the auction.
The foreclosure process that ends with the transfer of the property must strictly follow New Hampshire law. Our legal process is known as a “power of sale” foreclosure which provides lenders the right to take ownership rights from the current owner without going to court which is required in many other states. If the process is followed properly, then the ownership rights transferred by a foreclosure deed are the same as those transferred by any of the other type of deeds.
More and more foreclosing banks are taking title to real estate through foreclosure. Once the foreclosure is complete and the bank is the new owner, the bank has all the same rights and obligations as any other owner. Banks are not exempt from obligations to pay real estate taxes or condominium assessments and they can transfer the property to another party using either a warranty deed or quitclaim deed. Given the choice, a buyer should insist upon a warranty deed because the seller is “warranting” that the seller is the rightful owner of the property with the right to transfer it free of claims of others. Delivery of a “quitclaim deed” is considered a lower quality transfer. The seller is not warranting rightful ownership. Rather, the seller is simply transferring whatever legal rights seller has. Thus, if seller has none, no legal rights are transferred. A discerning buyer should understand the significance between the various types of deeds and a title company or realtor can help.