Tuesday, April 19, 2011

Who supports the warranty in a "statutory warranty deed?"

Experienced real estate investors may buy and sell many properties over the courses of their careers, and may rarely need to consider a feature of the deeds they sign when they sell their properties, namely the warranty.  Most sales of investment properties use the "statutory warranty deed."  The "statutory" part of the description means that the terms of the deed are set by statute in Washington.  The "warranty" part of the description alerts the parties that there are promises contained in the statute that are "read into" the deed.  There are five warranties in a statutory warranty deed, and all of them are given by the seller to the buyer.  So if you are the seller of a property under a statutory warranty deed, you are the one who supports the warranties you give to the buyer.  Why is this significant?  In some cases the value of the warranty obligation can exceed what the seller receives for the property in the sales price.  A recent case decided that an experienced investor who was also a licensed real estate broker breached the deed warranty he gave.  This occurred when the seller refused to defend a boundary dispute by a neighbor of the buyer on the basis that it would be cheaper for the seller to simply refund the purchase price to the buyer than to defend.  The court decided that this option was not open to the seller because of the statutory warranty contained in the deed, and the buyer's lawsuit against the seller for damages including lost profits from the stalled construction of a new house he was building on the land, could go forward.  The preceding is intended as instruction only and may not be construed as legal advice.

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