Warranties and Representations

A warranty is a contractual promise that certain facts are true, often facts about the physical or legal condition of a property. A breach of warranty is a breach of contract. The law implies a warranty of marketable title in every contract to sell real estate, unless the title warranty is disclaimed or modified in the contract. Marketable title means that no person has an enforceable claim to the property that would reduce its market value or create a risk of litigation. For example, if a trespasser (not the seller) has achieved title by adverse possession, the seller's title is not marketable. An "encumbrance" refers to claims against property that are not rights to exclusive possession, such as mortgages, liens, easements, and covenant restrictions on use of the property. An encumbrance is a breach of the warranty of marketable title, unless the buyer agrees in the contract to accept title with one or more encumbrances.

A misrepresentation is a false statement (or omission) of fact, that is material, and is reasonably relied upon by the injured party (typically the buyer.) An intentional misrerpesentation is a tort; the victim may recover actual and punitive damages. If the seller negligently or even innocently misrepresents a material fact about the property, the buyer may rescind the contract. The seller's failure to disclose a known, material fact is a misrepresentation if the seller had a legal duty to disclose the fact. Under the common law a seller had no general duty to disclose, except when the seller had actively concealed a fact preventing the buyer from discovering it, or had made a half-true but misleading statement. Many states have expanded the seller's duty to disclose, by statute or by case law. Buyers disappointed by the state of property title, or the condition of the property, may thus resort to misrepresentation claims against the seller in many cases.

The doctrine of merger is a rule that prevents a buyer from asserting a contract breach against a seller after the seller has conveyed a deed to the buyer, typically at a closing. So sellers' warranties regarding title or physical condition of the property are not enforceable after the closing of the property sale. On the other hand, the buyer may be able to assert a misrepresentation as a claim for damages or rescission even after a deed is conveyed at closing.