Real Estate Alphabet Soup: W is for Warranties

Miles & Stockbridge P.C.

In my last post, “Real Estate Alphabet Soup: V is for Variance” I continued my primer on the “alphabet soup” of real estate. This post continues to stir the “alphabet soup” with the letter W.”

W is for “Warranties”. A “warranty” is an assurance by one party in a transaction to the other party of the existence of a fact upon which the other party may rely. The “warranty” is intended as a promise that certain matters are true. If a “warranty” turns out to be untrue; however, then the other party may have recourse or seek remedies from the party making the false representation.

A contract for the sale of real estate typically contains certain representations and “warranties” that the seller and buyer make to each other. The contract will generally provide that the “warranties” are true at the time of the contract and through the closing or settlement date. Certain “warranties” made by the seller at the time of making a contract may be made again or reiterated at the time of settlement in the form of a seller’s or owner’s affidavit.

Typical seller’s “warranties” may include, for example, assurances that the seller is the owner and has valid legal title to the property. And if the seller is an entity, rather than an individual, there should be a “warranty” that the seller entity is a valid entity in good standing, and that the person executing the contract for the seller has the authority to do so on behalf of the entity. Other representations and “warranties” may include warranties confirming there are no pending liens, litigation, condemnation proceedings, bankruptcies or other actions pending against the seller or the property. And the seller will also generally provide “warranties” that there are no violations of any governmental laws or regulations involving the property. The seller will also generally provide a “warranty” that there are no other pending contracts for the sale of the property, or any leases of the property. And, if there are current leases of all or any part of the property, the seller will be required to disclose those leases to the buyer.

A buyer’s “warranties” are usually far fewer, but may include, for example, a “warranty” that there is no pending litigation or action threatened against the buyer that would have a material adverse effect on the buyer’s ability to purchase the property. And, if the buyer is an entity rather than an individual, there will be a “warranty” (which mirrors the seller’s warranty) that the buyer entity is a valid entity in good standing and that the person executing the contract on behalf of the buyer has the authority to do so on behalf of the entity.

So, just as there are certain “warranties” one expects to receive when buying a new car or product, there are also certain “warranties” a savvy purchaser should expect to receive when buying real estate, which is, after all, the largest purchase most people will ever make.

In my next post, I will move on to the letter “X”, the next letter in this real estate “alphabet soup.”

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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