The Statutory Warranty Deed: What You Should Know as the Seller
Craig on 11 13, 2009
This is not legal advice. For legal advice, consult an attorney in person, not a blog.
In most instances, a buyer will take title to the property by a statutory warranty deed. As the name implies, this deed is defined by statute. That said, this statute merely codified the common law, which evolved over several hundred years (beginning in medieval England).
In any event, a statutory warranty deed includes several warranties, or promises, from the seller:
(1) That at the time of the making and delivery of such deed he was lawfully seized of an indefeasible estate in fee simple, in and to the premises therein described, and had good right and full power to convey the same; (2) that the same were then free from all encumbrances; and (3) that he warrants to the grantee, his heirs and assigns, the quiet and peaceable possession of such premises, and will defend the title thereto against all persons who may lawfully claim the same.
Given that this is pretty dense “legalese,” I’ll summarize: When a seller conveys title by statutory warranty deed, the seller warrants to (or promises) the buyer: (1) that the seller was the sole true and legal owner of the property; (2) that the seller had the legal authority to pass title to the buyer; (3) that the property is free from all encumbrances; (4) that the buyer’s ownership of the property will not be challenged; and (5) that the seller will defend the buyer’s claim of ownership if challenged. If one of these warranties is breached, then the seller will be liable to the buyer under the terms of the deed.
Of particular importance, a seller makes these warranties and will be liable for their breach even if the buyer knows of the breach at the time of conveyance. If the seller wants to limit these warranties and to exclude certain known breaches (for example, a known encumbrance), then the seller must do so in the deed itself. This is accomplished by a “subject to” clause in the deed.
If the deed does not identify an existing encumbrance in a “subject to” clause, then the seller faces liability immediately upon closing. For example, assume the seller and buyer are both aware of the fact that the neighbor’s fence encroaches five feet onto the property. Moreover, everyone knows that the fence has been there for 20 years. Thus, everyone knows that the neighbor has a very good adverse possession claim (i.e., the neighbor has a good claim that he has taken ownership of the portion of the property on his side of the fence). Regardless, unless the deed specifically excludes this claim from the warranties within the deed, the seller will still be liable to the buyer for this claim. The seller would have to pay for any defense of the buyer’s title (i.e., attorney’s fees and costs of litigation), and if the neighbor had taken title to the area then the seller would have to compensate the buyer for the resulting loss in value.
Thus, it is important that the deed by which the seller conveys title correctly excludes from the inherent warranties those defects on title that are known and exist at the time of closing. Of course, a buyer may object to a “subject to” clause that includes the known defect (such as the fence and adverse claim in the hypothetical above) because the purchase and sale agreement requires the seller to resolve such encumbrances. But if the seller simply folds on the issue and warrants against the encumbrance, the seller is not doing himself any favors. Rather, certain liability will result.
About the Author: Craig Blackmon
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10 Responses to “The Statutory Warranty Deed: What You Should Know as the Seller”
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“This is not legal advice. For legal advice, consult an attorney in person, not a blog.”
Come on now Craig…….Now you know we all like the FREE advice. Why should we consult in person if we can just ask you here? Its an internet society. Heck, I have not been into my bank for nearly 7 months.
Kind of like Handle on The Law. The top rated broadcast in America. We Americans love FREE advice.
http://www.handelonthelaw.com/home/radioquestions.aspx
(I’m sorry ahead of time–I think I’m of topic)
Ray — Free is always good, but on the other hand I’m sure you’re familiar with the old adage, “You get what you pay for.” Anybody who relies on free “legal advice” does so at their peril. Perhaps it makes sense if the dispute is of minimal value, but if there is serious money at stake it is essential to hire a lawyer IN YOUR GEOGRAPHIC AREA (laws differ by state, in particular) for ACTUAL legal counsel specific to your situation.
Plus, it is essential for any attorney who even arguably dispenses legal advice to make sure the recipient(s) of such advice realize that the attorney is NOT their attorney and there is no attorney/client relationship. Lawyers have been found liable in situations where the recipient believed he was receiving legal advice from his attorney, where that “advice” was of course totally of the mark because it was dispensed as merely informational. Hence, my standard disclaimer.
Craig,
Very timely post. I just returned from a 3 hour meeting on the Title issues and exceptions on a newly built bank-owned property. Banks rarely if ever agree to “Statutory Warranty Deed”. Bargain and Sale Deed or Special Warranty Deeds are most common for property sold after being through the foreclosure process.
A buyer can’t insist on having a Statutory Warranty Deed and get the property. Your thoughts?
Ardell – My thoughts? The client should seriously consider hiring an attorney to analyze title, ownership, and possession issues to determine the extent of risk being assumed by the buyer in taking title by Bargain and Sale Deed (also a creature of statute) vs. SWD. I am handling a case where the owner took title by B and S Deed from the bank. Some time later, neighbor claimed an adverse interest in the client’s driveway (neighbor claimed ownership or easement based on adverse possession/use). This issue existed at the time the client took title. However, because client did not take title by SWD, client has no recourse against seller for injury resulting from adverse claim. Client would be in a much better position — MUCH better — if seller could turn around and seek indemnification from previous owner under SWD. So, your client should pay some amount now, up front, to identify any such possible issue withis property. Only in doing so will your client be able to make a fully informed decision about assuming the risks inherent to a B and S Deed.
Besides, Ardell, you know the rule: No legal advice by blog. Its just bad form.
Craig, is it pretty common for a seller to have to defend themselves from the implied warranties of the Statutory Warranty Deed in Washington state?
Rhonda — not common, but it happens. See my reply to Ardell for a situation where the seller WOULD have had to defend himself from claims arising out of a Statutory Warranty Deed, but for the fact that the seller was a bank and thus did not convey by SWD.
craig,
thanks for the article, good stuff. you’ve illuminated something that hadn’t paid specific attention to. i will definitely recommend my client consult an attorney in case we enter a scenario that may warrant it (who better to recommend it but, say the attorney that brought it to my attention?).
my question: to what extent is title liable, if at all, for these encumbrances (clouds)?
i’ve seen cases where contracting work was done on the property prior to closing even though the mechanics lien wasn’t recorded. title still ended up settling the claim later.
thank you in advance.
James — First, to clarify, by “title” you mean the title insurer who typically issues a policy at closing to insure the buyer’s title.
Whether the policy covers any particular encumbrance depends on several factors, including but not limited to the nature of the encumbrance, whether it was known to buyer before closing, the type of title insurance policy, and even the title insurer’s own analysis of cost of paying on the claim versus contesting coverage. So, the short answer to your question is “maybe.”
craig, yes you are correct, i meant to say title insurer.
regarding “the the types of title insurance” i had always assumed people get what is standard. i doubt that may buyers know the difference or can interpret the literature.
i assume that if it is known by the buyer, but not disclosed, that is not insured by the title company?
fyi, i don’t have any particular issue at hand and find this interesting.
James — the clarification was for the benefit of other readers. It is completely appropriate to simply say “title” but people not in the “industry” sometimes don’t fully understand the term.
Yes, a title insurance policy is difficult to decipher and also difficult to apply to any particular legal issue. Literally, some claims are paid by some insurers and not by others, even though everyone uses the same form policy. Its a dense area of the law.
Finally, yes, one of the standard exclusions from coverage is any defect known by the buyer but not revealed to the title insurer prior to issuance of the policy. So nondisclosure by the buyer of a known defect will very likely (but not always — again, these things are difficult to accurately predict) preclude insurance coverage for the defect.