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There is very little case law (or commentary)
regarding the interpretation, scope, and enforceability of
a "special" or "limited" warranty deed
(sometimes also referred to as a "deed with a covenant
against grantor’s own acts" or a "bargain and sale"
deed). The following is a sampling of the existing law and
commentary regarding the use of special and limited warranty
deeds in real estate transactions:
1. In Greenberg
v. Sutter, 661 N.Y.S.2d 933 (S.Ct. 1997), the court held
that a covenant in the deed stating that the grantor warranted
that it did not do or "suffer" anything whereby the property
had been encumbered in any way whatever, should be construed
broadly so that actual knowledge of an encumbrance is not
necessary to cause a breach of the deed covenant. See also,
Robert E. Parella, "1997-98 Survey of New York Law -- Real
Property," 49 Syracuse L. Rev. 703, 722 (1999) (stating that
"In Greenberg v. Sutter, plaintiff sought a declaration
of title by adverse possession. The defendant made a third
-party claim against his grantor on the latter's covenant
against grantor's acts. That standard covenant provides that
the grantor has not done or suffered anything whereby the
premises have been encumbered. The court held that the covenant
could be breached by allowing a claim by adverse possession
to mature, even if the grantor predecessor did nothing affirmatively
and had no actual knowledge of the adverse possession").
2. An old case in Illinois, McDonald
v. Minnick, 147 Ill. 651, 35 N.E. 367 (1893), held that
where an agreement for an exchange of lands would be "made
by deeds," the complainant was justified in rejecting a special
warranty deed and demanding a general warranty deed (this
case is still good law).
3. In Woolf v.1417 Spruce Associates,
68 F.Supp.2d 569 (E.D. Pa. 1999), the court, noting that "[t]here
is a paucity of case law concerning obligations created by
the conveyance of property through a special warranty deed,"
held that a mortgage lien on the property that pre-dated the
acquisition of the property by Freddie Mac through a mortgage
foreclosure proceeding (Freddie Mac subsequently conveyed
the property to the defendant-purchaser by special warranty
deed), was created "without Freddie Mac’s knowledge,
fault, consent, or acquiescence," and therefore "did
not constitute a claim arising by, through, or under the grantor."
Id. at 571.
The court noted that
the Pennsylvania Superior Court, in Leh v. Burke, 231
Pa. Super. 98, 331 A.2d 755 (1974), had ruled that a grantor
who conveyed the property by special warranty deed was not
responsible for a covenant in the original deed to her that
was not mentioned in the special warranty deed to her grantee.
The court in Leh stated that in order to recover against
a grantor under a special warranty deed, it must be shown
that the grantor "caused or allowed a lien or encumbrance
to burden the land at the time of transfer." 231 Pa.
Super. at 114.
The plaintiffs in Woolf,
who held a prior mortgage lien against the property, argued
that Freddie Mac had not provided proper notice to them of
the foreclosure sale and failed to extinguish their prior
lien, thereby "allowing" the preexisting mortgage
to "burden" the property at the time of Freddie
Mac’s subsequent transfer to the purchaser-defendant. However,
the court rejected this argument, finding that "Freddie
Mac never had a duty to extinguish the [plaintiff’s] lien
because, as a preexisting lien, it did not arise by, through,
or under the grantor." 68 F.Supp. at 571. According
to the court, under a special warranty deed "the grantor
may very well be capable of extinguishing all encumbrances
on a property before conveyance, but he is not required
to do so under a special warranty deed. Rather, he is required
only to free the property from those encumbrances which he
created or allowed to burden the land at the time of conveyance."
Id. at 572. (emphasis in original text).
The relevant language
in the deed, by which Freddie Mac conveyed the property to
the defendant-purchaser, reads as follows:
Grantor does hereby
bind itself and it successors and assigns to WARRANT SPECIALLY
all and singular the property unto Grantee, its successors
and assigns, against every person lawfully claiming by,
through, or under Grantor, but not otherwise; provided
that this conveyance and the warranty of Grantor herein
contained are subject to . . . any and all matters of record.
(emphasis added)
Freddie Mac pointed
out that the preexisting mortgage lien was a "matter
of record" of which the plaintiff had notice, as it was
recorded several years before the conveyance by Freddie Mac.
The plaintiff, in turn, argued that the Marshal’s foreclosure
sale was also a "matter of record" at the time Freddie
Mac’s deed was granted and that a properly noticed foreclosure
sale would have extinguished the prior lien. However, as noted
above, the court held that Freddie Mac never had a duty to
extinguish the pre-existing lien in the first place because
it did not arise as the result of any action (or inaction)
by Freddie Mac. Unanswered by the court is the question of
whether the language highlighted in the above granting language
in the Freddie Mac deed would absolve the grantor from liability
for a matter of record that was "created or allowed
by the grantor."
4. Black’s Law Dictionary
(6th ed. 1990, at 1398), defines "Special
Warranty Deed" as follows:
A deed in which the
grantor only covenants to warrant and defend the title against
claims and demands of the grantor and all persons claiming
by, through and under him.
5. In Ward on
Title Examinations (published by the Illinois Institute
for Continuing Legal Education in August, 1997), the last
paragraph of Section 38 states:
A special warranty
deed has practically the same effect as a quitclaim deed
and warrants only to the extent the warranty is stated in
the deed, which usually merely warrants that the grantor
has done nothing to impair such title as he may have obtained
but contains no warranty as to any matter affecting the
title before its acquisition by the grantor.
6. In an article
entitled Helpful Hints on Handling Real Property Issues
During a Divorce, by Virginia H. Abiassi, Houston Lawyer,
January/February 1994, the author states (at p.30):
The special warranty deed is the
most commonly used form of conveyance between spouses when
implementing the division of property made in a divorce
decree. Essentially the difference between the general warranty
deed and the special warranty deed is that the grantor in
the special warranty deed limits the liability to persons
claiming through to the grantee. In divorce situations,
a title company should accept a special warranty deed from
one spouse to the other.
7. In an article
by Joyce D. Palomar entitled Limited Liability Companies,
Corporations, General Partnerships, Limited Partnerships,
Joint Ventures, Trusts -- Who Does the Title Insurance Cover?,
31 Real Prop. Prob. & Tr. J. 605 (1997), the author states,
at 612:
Some non-ALTA owner's policies have
limited warranty coverage to a certain number of years,
placed conditions on when the warranty period commences,
or simply made no provision for warranty coverage. In these
cases, or when the insured conveys the insured real property
interest by quitclaim deed, the policy's coverage simply
ends. Termination of the policy's coverage is also the practical
result when an insured owner has transferred the insured
real property interest by special warranty deed. A grantor
conveying by special warranty deed covenants only that the
grantor has created no title defects that will render the
title unmarketable or disturb the grantee's quiet enjoyment
thereof.
One standard exclusion in owner's
title insurance policies excludes from coverage losses due
to matters 'created, suffered, assumed or agreed to by the
insured.' In addition, other policy clauses limit coverage
under an owner's title insurance policy to losses caused
by defects existing prior to the effective date of the policy,
which is almost always contemporaneous with the date that
the owner acquired the insured real property interest. The
insured owner generally would not have created title defects
prior to acquiring title to the land. Therefore, title defects
for which a grantor could be subject to liability under
a special warranty deed necessarily would be excluded from
the warranty coverage of the owner's title insurance policy.
8. In the author’s
days as in-house counsel for major institutional real-estate
owners and lenders (Prudential, Travelers, and Bank of America),
there were strict instructions that, in connection with sales
of company-owned property, the company was only to give a
special or limited warranty deed (or a "deed with covenant
against grantor's own acts") and never, EVER give the buyer
a general warranty deed. The author was, in fact, informed
that the giving of a general or full warranty deed would in
fact be an ultra vires act by the corporation, and
that conveyances of the company’s property were never to obligate
the corporation (or its officers or directors) for acts that
occurred other than during the company's period of ownership.
Click
here for the .pdf file of Exhibit "A"
attached hereto for a sample form of special/limited warranty
deed.
EXHIBIT
"A"
[SPECIAL] [LIMITED]
WARRANTY DEED
THIS INDENTURE, made on the ____
day of ____________, 19__, by and between _____________________________________,
[a ________________________ corporation] (hereinafter "Grantor"),
and __________________________, a __________ (hereinafter
"Grantee").
W I T N E S S E T H:
THAT Grantor, in consideration
of the sum of Ten Dollars ($10.00) and other good and valuable
consideration, to it paid by Grantee, the receipt of which
is hereby acknowledged, does by these presents, sell and convey
unto the said Grantee, its successors and assigns, the lots,
tracts or parcels of land lying, being and situated in the
City of __________________________, County of ___________________________,
State of _________________________, and described on Exhibit
"A" attached hereto and incorporation herein by
reference subject to the matters set forth on Exhibit "B"
attached hereto and incorporated herein by reference.
TO HAVE AND TO HOLD the premises
aforesaid with all and singular, the rights, privileges, appurtenances
and immunities thereto belonging or in any wise appertaining
unto the said Grantee and unto Grantee’s heirs, successor
and assigns forever, the said Grantor hereby covenanting that
the premises are free and clear from any encumbrance done
or suffered by Grantor; and that Grantor will warrant and
defend the title to said premises unto the said Grantee and
unto Grantee’s heirs, successors and assigns forever, against
the lawful claims and demands of all persons claiming by,
under or through Grantor.
IN WITNESS WHEREOF, the said Grantor
has executed this [Special] [Limited] Warranty Deed the day
and year above written.
________________________________,
[a ______________________________]
ATTEST:
By: _____________________ By: _____________________________
Its: _____________________________
STATE OF _______________________ )
) SS.
COUNTY OF _____________________ )
On this _______ day of ___________________,
19__, before me appeared
_________________________________and
______________________________,
to me personally known, who being by
me duly sworn, did say that they are the
_______________________ and _____________________________
of
________________________________, a
________________________________
corporation, the corporation that executed
the within and foregoing instrument and that said instrument
was signed and sealed in behalf of said corporation by authority
of its Board of Directors, and that the seal affixed is the
corporate seal of said corporation and said ________________________
and ________________________ acknowledged said instruments
to be the free act and deed of said corporation.
___________________________
Notary
Public
___________________County
My Commission Expires:
____________________
Exhibit "A"
Legal Description
Exhibit "B"
Permitted Exceptions
John C. Murray, Esq
Vice President/Special Counsel
First American Title Insurance Company
30 N. LaSalle
Suite 310
Chicago, IL 60602
Ph: (312)917-7218
Fax: (630) 799-8706
Email:
jmurray@firstam.com
© 2001 American Bar Association
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