1.  What does HUD mean by the term "warranty deed of conveyance" in the Lease Addendum (HUD-92070-ORCF)?  

 

 

 

1.  I have a question regarding the drafting of HUD’s Lease Addendum (HUD-92070-ORCF).  Section b states the following:

“The landlord shall, within thirty (30) days after HUD gives such notice, execute and deliver to HUD a warranty deed of conveyance to HUD as grantee conveying the said fee and interest and containing a covenant against the grantor's acts . . . .”

Generally, in NY State a warranty deed provides full protection to the grantee that no liens exist on the property and, if they do exist, that they will be the responsibility of the grantor.  Thus, the Warranty Deed provides the most protection available to the grantee.  Contrast this deed with a Bargain and Sale Deed with a covenant against the grantor’s acts, which only provides protection as to the grantors acts, not the acts of all previous owners. 

I am working on a deal where the Landlord only wants to provide a Bargain and Sale deed.  He argues that this is what HUD really intended, as they explicitly state that the warranty deed must contain a covenant against grantor’s acts (i.e., in NY it is redundant to ask for this covenant with a warranty deed). 

Does HUD know what the drafter of this Addendum intended?  If it was the strongest protection available in the state then I will ask that the language remain unchanged.  If the intent was to collect what is most common in the industry then I would recommend that we allow for the revision to state a bargain and sale deed with covenant against grantor’s acts can be given.

 

In the event HUD acquires a leasehold estate and exercises its option to purchase the fee, HUD will accept any deed that protects HUD from the grantor’s acts.  In some states, a “special warranty deed” will satisfy this requirement, in which case the language in the Lease Addendum does not need to be changed (a special warranty deed is a type of warranty deed).  If, under a state’s law, the name of the type of deed that protects against the grantor’s acts does not include the word “warranty”, then the phrase “warranty deed” can be changed to the applicable term dictated by state law.  For example, in New York, “warranty deed” may be changed to “Bargain and Sale Deed” if a Bargain and Sale Deed offers the grantee protection from acts of the grantor.