Sellers Should Be Aware of Warranty Deed Covenants

Very few sellers and buyers of real estate, particularly residential real estate, have a good understanding of the promises that are made by a seller who signs a warranty deed. In a recent decision, Lloyd v. Estate of Robbins, 2010 ME 59, P11 (Me. 2010), the Maine Supreme Judicial Court provided some helpful guidance about the meaning and enforceability of warranty covenants, which are the promises that a seller of real estate makes to a buyer when transferring real estate with a warranty deed. These promises or covenants provide assurances to the buyer that the seller has good title and that, under certain circumstances, the seller will defend that title if it is challenged in the future. More specifically, the seller promises that he/she is lawfully in possession of the property, that the property is free of encumbrances, that the seller has good right to sell and convey the property, and that the seller will “warrant and defend the title to the buyer, his heirs and assigns forever, against the lawful claims and demands of all persons.”The case involved a boundary dispute over a 17 acre parcel of land in Southwest Harbor that the buyer acquired by warranty deed in 2000. After the sale, a dispute arose between the buyer and the abutting landowners regarding a boundary of the property that resulted in litigation and ultimately a judgment, confirming the abutters’ title to nearly three acres of the parcel described in the deed. In 2008, the buyers filed suit against their sellers, alleging breach of covenant of seisin, breach of covenant of right to convey, and breach of warranty covenants. A critical question was whether some or all of the claims were barred by the statute of limitations.First, the Court concluded that the standard six-year statute of limitations applies to the deed covenants. The Court rejected the theory that the covenants are perpetual. It did note that a twenty-year statute of limitations would apply if the deed is “under seal.” Because the deed in Loyd did not contain the seal of the grantor or a proper “recital that the deed was sealed by the person signing the deed, or was given under the hand and seal of the person signing the same,” the twenty-year limitations period did not apply. The inclusion of seal recitals could become an interesting negotiation point between buyers and sellers of residential real estate.Next, the Court explained that the six-year limitations period begins to run at different times for different covenants. Some covenants are “present covenants” while others are “future covenants” that run with the land. The covenants that the seller has lawful possession and the right to convey are personal while the covenants that the land is free from encumbrances and that the seller will warrant and defend title are future covenants. The six-year period for present covenants begins to run at the time of sale but does not begin to run for future covenants until the buyer’s possession and enjoyment of the land has been disturbed, which could occur as early as the sale date, or some later date. In the Loyd case, the present covenants were barred because the suit was brought more than six years after the sale. Because the record had not established when the abutting property owner had taken possession of the disputed land, the Court could not determine when the limitations period began on the future covenants and remanded the case to the trial court to make that determination.This case is a good reminder to real estate sellers that their legal connection to the land they sell does not end when they sign the deed of sale. Future title liabilities can arise for at least six years after the sale. It is a good reminder of the value of obtaining title insurance and a thorough title review when buying real estate, to avoid title problems arising after a subsequent sale.