Module 5 Assignment – Deed Warranties/Covenants

09/22/2024

Module 5 Assignment – Deed Warranties/Covenants

Purpose

The purpose of this assignment is to explore the various types of deeds and the protections (i.e. warranties/covenants) each one provides.

Part A:

• Explain the six (6) warranties/covenants contained in a general warranty deed. (18 points)

1. Covenant of seisin: This ensures that the grantor has the right to transfer the property, and that there are no third-party claims against it.

2. Covenant of right to convey: This guarantees that the grantor has the legal right to transfer the property to the grantee.

3. Covenant against encumbrances: This assures that the property is free from any mortgages, tax liens, leases, or easements at the time of transfer.

4. Covenant of further assurance: This promises that the grantor will rectify any oversight in the deed that affects the title.

5. Covenant of quiet enjoyment: This grants the grantee the right to use the property without fear of eviction or third-party claims.

6. Present versus Future Covenants: The present covenant guarantees that the property is free from any claims or assertions at the time of transfer, while the future covenant ensures protection against future title breaches.

• Locate and cite the Indiana statute found in Title 32, which provides the requirements for Transfer on Death (TOD) deeds. (5 points)

IC 32-17-14-11Transfer on death deeds

                                      Sec. 11. (a) A transfer on death deed transfers the interest provided to the beneficiary if the transfer on death deed is:

(1) executed by the owner or owner’s legal representative; and

(2) recorded with the recorder of deeds in the county in which the real property is situated before the death of the owner.

(b) A transfer on death deed is void if it is not recorded with the recorder of deeds in the county in which the real property is situated before the death of the owner.

(c) A transfer on death deed is not required to be supported by consideration or delivered to the grantee beneficiary.

(d) A transfer on death deed may be used to transfer an interest in real property to either a revocable or an irrevocable trust. 

(e) If the owner records a transfer on death deed, the effect of the recording the transfer on death deed is determined as follows:

(1) If the owner’s interest in the real property is as a tenant by the entirety, the conveyance is inoperable and void unless the other spouse joins in the conveyance.

(2) If the owner’s interest in the real property is as a joint tenant with rights of survivorship, the conveyance servers the joint tenancy and the cotenancy becomes a tenancy in common.

(3) If the owner’s interest in the real property is as a joint tenant with rights of survivorship and the property is subject to a beneficiary designation, a conveyance of any joint owner’s interest has no effect on the original beneficiary designation for the non-severing joint tenant.

(4) If the owner’s interest is as a tenant in common, the owner’s interest passes to the beneficiary as a transfer on death transfer.

(5) If the owner’s interest is a life estate determined by the owner’s life, the conveyance is inoperable and void.

(6) If the owner’s interest is any other interest, the interest passes in accordance with this chapter and the terms and conditions of the conveyance establishing the interest. If a conflict exists between the conveyance establishing the interest and this chapter, the terms and conditions of the conveyance establishing the interest prevail.

(f) A beneficiary designation in a transfer on death deed may be worded in substance as “(insert owner’s name) conveys and warrants (or quitclaims) to (insert owner’s name), TOD to (insert beneficiary’s name)”. This example is not intended to be exhaustive.

(g) A transfer on death deed using the phrase “pay on death to” or the abbreviation “POD” may not be construed to require the liquidation of the real property being transferred.

• What warranty(ies)/covenant(s) does/do TOD deeds provide? (2 points)

A warranty or covenant does not cover Transfer on Death (TOD), but a few options are available. A General Warranty Deed with six covenants of Seisin, Right to Convey, against Encumbrances, Further Assurance, Quiet Enjoyment, and Warranty of present and future covenant are clear. Most of these deeds or covenants are straightforward in the title of the ownership property. If there is a single property owner has a deed under certain warranties or covenants will not TOD unless they have a Will, trust, or an Estate established that will give directives or specifics on how the property will be dispersed among their heirs. Aside from the property title of warranty or covenant, this document is separate.

There are a few exceptions to the warranty and how it is titled. Unless there are two or more owners, they can do a quitclaim deed, giving direction to the title to be conveyed with a right to survivorship. If one of the property owners dies, their interest is TOD to the surviving owner/s of the real property. If the Executor and Administrator Deed outline the property on a Trust Deed to TOD, this will be provided to the new trustee as the new owner/s. The executor will fill out the quitclaim deed with the legal name for the title, the description of said property, and the conveyance; then, the executor will file legal documents in the county where the property is located.

Part B:

Read the hypothetical scenario below and answer the questions following:

Aaron owns a farm. Aaron has given First Bank and Trust a mortgage on the farm.  Aaron transfers ownership of the farm to Bob and gives Bob a general warranty deed.  The general warranty deed to Bob warrants that there are no encumbrances on the farm and does not mention the mortgage to First Bank and Trust.  Bob owns the farm only a short time and sells the farm by limited warranty deed to Caren.  Caren decides that farm life is not for her and sells the farm by general warranty deed to David.  The general warranty deed does not mention the mortgage to First Bank and Trust.  One week after David purchased the farm, First Bank and Trust notified David of the mortgage.

Consider this question: “Is there a breach of any deed warranty or covenant and, if so, which deed(s) (identify the grantor and grantee) and which covenant(s)?” Now answer the questions following with a “yes” or “no” and then provide your reasoning.

1. At this stage, does David have a viable claim against Caren? Explain. (5 points)

There is a breach of the covenant of quiet enjoyment due to encumbrances on the property. The main issue is how Caren managed to sell the property without a clear title. If a title search had been conducted when Caren purchased the property from Bob, it would have revealed that Bob only owned the farmland for a short period, ensuring there were no liens on the property. Therefore, each transaction must be traced back to the previous sale to address this breach of the warranty deed due to encumbrances. It is essential to clarify the title on this property, as there is a lien against the covenant of quiet enjoyment and warranty. Under the limited warranty deed, David can argue that the express covenant against encumbrances ensures the property has a free and clear title with no deficiencies. On the other hand, Caren must file a claim against Bob and demand a clear title or deed to address any deficiencies such as liens, taxes, or mortgages on the property.

• Does David have a viable claim against Bob? Explain. (5 points)

No, David has no claim against Bob. The issue with the limited warranty that Bob provided to Caren in good faith was that Bob guaranteed the title was free from any lien or mortgage to his knowledge. Therefore, Bob did not offer a General Warranty Deed to Caren, making him not responsible for the claim. The responsibility for the quiet enjoyment of the warranty lies with Arron, who did not ensure that the title of the land had a clear deed with the grantee taking possession of the property. Unfortunately, David cannot assert a claim against Bob because of the oversight and the lack of knowledge of whether Bob knew or not it was a clear deed on the property that was free of encumbrance. As a limited warranty deed, the grantor assures a clear title only during his ownership without previous knowledge of any liens.

•  Does David have a viable claim against Aaron? Explain. (5 points)

David has a valid claim against Aaron. The general warranty deed contains six covenants and warranties to protect the current and future property grantees in receiving the land transferred by the grantor. Bob possessed a general warranty deed that could enforce the covenant of present and future owners in case of deficiencies in the deed. In this situation, the general warranty deed applies as a breach of covenant that transfers and runs with the land for future claims. The future covenant against Aaron can use the further assurance condition fee as a mortgage lien against the property title. Aaron failed to disclose that he had a mortgage against the property, and First Bank and Trust placed a collateral lien against the farm deed. The claim against the farmland deed is not free and clear under the quiet enjoyment and warranty covenant. As a third party, the unencumbered First Bank and Trust can assert a claim against David’s property.

•  Other than anyone you named previously, does anyone else have a viable claim against someone in this hypothetical? Explain. (5 points)

David has a valid claim against the title company that researched the farmland to confirm no encumbrances against the property. However, after David purchased the property, he discovered a lien against it, which was not mentioned in the deed or at closing. The title company assured us there would be no burdens or restrictions and provided a simple deed as part of the search. The title company promptly granted the appurtenances for the sale or transfer of the farmland to the grantee in perpetuity. In the deed preamble between the grantor and grantee, the conveyance of the unencumbered land was promised, free of all restrictions. David claims that the title company was competent in preparing the deed but failed to fulfill their commitment to correct any errors during the research in the deed history. Therefore, it is imperative to take all necessary steps to clear the title of the lien against the property.

Written by: Greg MD