A recent Washington Supreme Court Case held that: (1) as a matter of first impression, a grantor’s duty to defend title, in a Statutory Warranty Deed (“SWD”), is not satisfied by a settlement conceding a third party’s claim to title, regardless of the merits, and payment to the grantee of damages for the value of the portion by which the title is diminished, and (2) grantees did not waive the warranty to defend title. Edmonson v. Popchoi, 172 Wn. 2d 272, 256 P.3d 1223 (2011).
In that case, a neighbor filed an adverse possession claim after the buyer, Popchoi, purchased the subject property in Bellevue, Washington. Notwithstanding the fact that the buyer knew before closing that encroachment was shown on a survey commissioned by the buyer but unknown to the seller, the buyer tendered the defense to the seller under the warranties in the deed. The neighbor prevailed on the adverse possession claim. The loss of the 165 square feet of property negatively impacted the buyers’ setback area and diminished the amount of land required for R-4 zoning. Although the court did not award damages for diminution, the Buyer did get an award for attorneys’ fees for the actions it took to defend the claim after it was tendered to the Seller. The Court held that the Grantor has a good faith duty to defend, and could not simply cede the land and settle the matter with the Grantee.
According to Dwight Bickle, counsel for Rainier Title, most sellers who provide the warranties of a Washington SWD, do not have title insurance protection against the liability for loss of land and the liability of the duty of defense that were presented by the adverse possession ownership claim that was the subject of that case.
The seller should anticipate a purchaser would react poorly if a seller only agreed to provide a quitclaim deed, or a bargain and sale deed, perhaps leading to reduced price. Plus, there is an independent duty of a seller to disclose known boundary disputes on the Seller Disclosure Statement (locally, form 17).
The seller should, however, except from the warranties, specifically, for any known encroachment of a boundary improvement onto the land of a neighbor. The seller should also except from the warranties, specifically, for any known possible claim of adverse possession, or claim of prescriptive easement, disclosed by possession by an adjoining property owner of any land inside the legal description boundary of the deed. A prudent seller may also consider a generic exception for possible encroachments or uses of the property that could be an adverse possession or a prescriptive easement right as would be disclosed by an accurate survey, using much the same language title companies use on their commitments for standard coverage when no survey is obtained.
These unrecorded boundary issues are not disclosed typically by any recorded document that the title company searches. Title companies usually do not have surveys of residential property, since extended coverage is rare for residential title transfers. Historically, these off-record possession and use issues have not been insured against by owner’s title insurance policies. Limited protections that have been given focus on the house, excluding boundary improvements.
All title insurance policies contain a contractual subrogation right of the title company to the rights of an Insured exposed to a loss covered by the title insurance policy allowing the title company to seek recovery by pursuing the seller based upon the deed warranties of the SWD.