Remedying Breaches of Title Covenants - dummies

Remedying Breaches of Title Covenants

By Alan R. Romero

Damages are the grantee’s remedy for breach of a deed covenant. The grantee can also specifically enforce the grantor’s covenant to provide further assurances.

The grantee is generally entitled to get her money back from the grantor if she paid for something she didn’t get from the grantor. That means that the most the grantee can recover is the purchase price she paid for the property.

It also means that the grantee’s damages are generally measured by the value of the property at the time of the grantor’s conveyance, not when the covenant is breached or the grantee brings her claim. The deed covenants are more like a money-back guarantee on consumer products than an insurance policy.

If the grantee recovers the entire purchase price paid, the grantor is entitled to get back from the grantee whatever title the grantee actually received. Courts figure that if the grantee got all her money back, she shouldn’t be able to keep any of the title that the grantor did actually have power to convey to the grantee.

Usually when a grantee receives property for free, the grantor doesn’t warrant title. But a grantee may receive a warranty deed even though she didn’t pay anything for the property conveyed. Some courts allow such a grantee to recover damages up to the market value of the land at the time of the conveyance.

Additionally, a grantee can sue previous grantors for breach of their future deed covenants. When the grantee wins such a claim, she can’t recover more than the prior grantor received for the property, even if she paid more than that. The covenanting grantor’s liability is always limited by the amount she received for the property.

But cases disagree on how much the grantee may recover if she paid less for the property than the prior grantor received. Some cases say that the grantee may only recover what she paid for the property, whereas other cases say that the grantee may recover her actual loss up to the amount that the prior grantor received for the property.

Measuring damages for lack of title

The grantor’s lack of title, in whole or in part, breaches the present covenants of seisin and right to convey; it also may breach the future covenants if the valid title holder evicts the grantee. Whether the grantee successfully sues for breach of present or future covenants, the grantee is basically entitled to get back the money that she paid for property she didn’t get (not the current value of the property).

If the grantor actually didn’t own the property at all, the grantee can recover the entire purchase price she paid. If the grantor had title to some but not all of the property conveyed, then the grantee is entitled to recover whatever she paid for the part not conveyed.

For example, if she paid $200,000 for 40 acres and the grantor didn’t actually have title to one of those acres, then the grantee would get back $5,000, which is 1/40 of the purchase price.

The grantee’s recovery for breach of the deed covenants is limited in this way even if she invested money in improving the property. If she bought undeveloped land and then built buildings on the land, the property may be worth much more than when she bought it.

However, even though the grantee can’t recover the value of the improved property from the covenanting grantor, the grantee in this situation may get relief through rules about mistaken improvements.

In general, if a person improves land in good faith, mistakenly believing she owns the land, the person who does actually own the land must pay her for the increased market value of the land or sell the land to the improver for its unimproved value.

Measuring damages for encumbrances

The existence of an encumbrance breaches the present covenant against encumbrances. The assertion of a valid encumbrance that interferes with the grantee’s use and enjoyment of the property breaches the future covenants.

In either case, the grantee is entitled to recover the amount of the purchase price that she paid for value she didn’t receive — in other words, the difference in the market value of the property at the time she bought the property.

There’s an important alternative for the grantee, however. The grantee can instead recover the reasonable cost of removing the encumbrance, although she still can’t recover more than her total purchase price. If the encumbrance is a mortgage, the grantee can recover the amount of the mortgage debt.

Recovering litigation costs

If the grantee reasonably contests the claim of another interest holder and loses, the grantee may recover her attorneys’ fees and other litigation costs. Likewise, the grantee can recover attorneys’ fees for negotiating to buy out a valid interest holder. Some courts may award attorneys’ fees only if the grantee first notified the grantor and asked her to defend the title.

However, the grantee can’t recover attorneys’ fees she pays for a dispute between the grantee and the covenanting grantor. And if the grantee wins a lawsuit against someone claiming an interest in the property, then she isn’t entitled to attorneys’ fees or any other damages from the grantor — the grantee’s successful lawsuit establishes that in fact the claimant didn’t own a valid interest in the property and the deed covenants therefore weren’t breached.