Covenant of Seisin

What is the Covenant of Seisin?

The Covenant of Seisin is a fundamental assurance in real estate law, particularly within the context of a general warranty deed. It is a promise made by the grantor (seller) to the grantee (buyer) that the grantor is lawfully seized of the property, meaning they own the estate they purport to convey and have the right to convey it. This covenant ensures that the grantor holds both title and possession of the property at the time of the conveyance, free from any defects that would prevent them from transferring full ownership.

Historically rooted in feudal land law, where "seisin" referred to the possession of land by a freeholder, this covenant remains a cornerstone of modern real estate transactions. For real estate investors, understanding the Covenant of Seisin is paramount as it directly impacts the validity of their acquired title and their ability to exercise full ownership rights, including leasing, developing, or reselling the property. A breach of this covenant can lead to significant legal and financial repercussions, making thorough due diligence and robust title protection essential.

The Six Covenants of Title

The Covenant of Seisin is one of six standard covenants of title typically included in a general warranty deed, offering comprehensive protection to the grantee. These covenants are categorized as either present covenants, which are breached at the time of conveyance, or future covenants, which are breached when the grantee's possession is disturbed. The Covenant of Seisin falls under the category of present covenants.

Covenant of Seisin (Detailed)

This covenant specifically guarantees that the grantor holds the estate in the quantity and quality described in the deed. For instance, if a deed purports to convey a fee simple absolute estate, the Covenant of Seisin assures the grantee that the grantor indeed possesses that fee simple absolute. If the grantor only holds a life estate or a lesser interest, or if there is a defect in the chain of title that prevents them from having full legal ownership, the covenant is breached at the moment the deed is delivered.

A key characteristic of present covenants like seisin is that they do not run with the land in many jurisdictions. This means that only the immediate grantee can sue for a breach; subsequent purchasers typically cannot. However, some modern interpretations and statutes may allow for exceptions or assignability of the cause of action, making it crucial for investors to understand the specific laws in their jurisdiction.

Other Covenants of Title

• Covenant of Right to Convey: Assures the grantor has the legal right to transfer the property.Covenant Against Encumbrances: Guarantees the property is free from undisclosed liens, mortgages, easements, or other burdens.Covenant of Quiet Enjoyment: Protects the grantee's possession against lawful claims of third parties.Covenant of Further Assurances: Obligates the grantor to perform any reasonable acts necessary to perfect the grantee's title.Covenant of Warranty: The broadest covenant, promising to defend the grantee's title against all lawful claims and to compensate for any loss.

Implications for Real Estate Investors

For real estate investors, the Covenant of Seisin is not merely a legal formality; it is a critical assurance that underpins the entire investment. Without valid seisin, an investor may acquire a property with a defective title, leading to disputes over ownership, inability to secure financing, challenges in leasing, or even complete loss of the investment. Understanding this covenant is essential for mitigating risks and ensuring the long-term viability of a real estate portfolio.

Due Diligence and Risk Mitigation

The presence of a Covenant of Seisin in a deed does not eliminate the need for rigorous due diligence. Instead, it provides a legal recourse should a defect in title be discovered post-closing. Investors must conduct thorough title searches, obtain title insurance, and, where appropriate, seek legal counsel to verify the grantor's ownership rights and identify any potential clouds on title before closing.

• Comprehensive Title Search: Engage a reputable title company to perform a detailed examination of public records, including deeds, mortgages, liens, judgments, and other documents affecting the property's title.Review of Title Commitment: Carefully analyze the title commitment issued by the title insurer, noting any exceptions or requirements that need to be addressed before closing.Obtain Owner's Title Insurance: This policy protects the investor against financial loss due to defects in title, including breaches of the Covenant of Seisin, that were unknown at the time of purchase.Survey Review: Commission a property survey to verify boundaries and identify any encroachments or easements not apparent from the deed.Legal Counsel: Consult with a real estate attorney to interpret complex title issues, review deed language, and advise on potential risks.

Types of Deeds and Warranties

The level of protection offered by the Covenant of Seisin depends on the type of deed used in the conveyance:

• General Warranty Deed: Provides the highest level of protection, including all six covenants of title, warranting against defects in title arising throughout the property's history, even before the grantor owned it. This is the preferred deed for most buyers.Special Warranty Deed: Warrants title only against defects that arose during the period of the grantor's ownership. The Covenant of Seisin in a special warranty deed would only guarantee that the grantor had seisin during their tenure, not before.Quitclaim Deed: Offers no warranties of title whatsoever. The grantor merely conveys whatever interest they may have, if any, without any promises regarding seisin or other title covenants. Investors should be extremely cautious when accepting a quitclaim deed, typically only doing so in specific circumstances like clearing a cloud on title or transferring property between family members.

Breach of the Covenant of Seisin

A breach of the Covenant of Seisin occurs at the moment of conveyance if the grantor does not possess the estate they claim to convey. This means the grantee does not need to be evicted or suffer actual disturbance of possession to claim a breach. The mere fact that the grantor lacked the full title or interest they purported to transfer is sufficient.

Common Scenarios Leading to Breach

• Prior Unrecorded Conveyance: The grantor previously sold or conveyed a portion or all of the property to another party, and that deed was not recorded or discovered during the title search.Adverse Possession: A third party has acquired title to the property, or a portion of it, through adverse possession prior to the conveyance.Defective Chain of Title: There is a break or flaw in the historical record of ownership, meaning the grantor's claim to title is not fully established.Grantor Lacks Full Interest: The grantor only owns a partial interest (e.g., a one-half undivided interest) but purports to convey the entire fee simple estate.Lack of Legal Capacity: The grantor was legally incompetent (e.g., a minor or mentally incapacitated) at the time of a prior conveyance in the chain of title, rendering that conveyance voidable.

Remedies and Damages

When a breach of the Covenant of Seisin occurs, the grantee typically has the right to sue the grantor for damages. The measure of damages is generally the purchase price paid for the property, or a proportionate amount if only a partial interest was conveyed, plus interest. In some cases, the grantee may also be able to recover costs associated with defending the title.

Example: Calculating Damages for Partial Breach

An investor purchases a 10-acre parcel of land for $500,000, believing they are acquiring full fee simple ownership. Later, a title defect reveals that the grantor only owned an 8-acre interest, with the remaining 2 acres belonging to an adjacent landowner through adverse possession. The investor has suffered a partial breach of the Covenant of Seisin.

• Original Purchase Price: $500,000Total Acres Represented: 10 acresAcres Actually Conveyed: 8 acresProportion of Interest Not Conveyed: (2 acres / 10 acres) = 20%Damages for Partial Breach: 20% of $500,000 = $100,000

In this scenario, the investor could sue the grantor for $100,000, plus any applicable interest and legal costs, even if they still retain possession of the 8 acres. The breach occurred at the time of the deed's delivery because the grantor did not possess the full 10 acres they purported to convey.

Real-World Examples and Case Studies

Understanding the practical implications of the Covenant of Seisin is best achieved through real-world scenarios.

Example 1: Unrecorded Prior Deed

An experienced investor, Sarah, purchases a commercial property for $1.5 million with a general warranty deed. The title search appears clear. Two years later, as Sarah prepares to sell the property, a new title search reveals an unrecorded deed from 15 years prior, conveying a 10-foot strip of the property to an adjacent business. This strip, valued at $150,000 at the time of Sarah's purchase, significantly impacts the property's access and development potential.

1. Discovery of Breach: The unrecorded deed means the original grantor did not have seisin over the entire 10-foot strip at the time of conveyance to Sarah.Legal Action: Sarah's attorney advises her that the Covenant of Seisin was breached. Since the breach occurred at the time of her purchase, she can sue her grantor for damages.Financial Impact: Sarah files a lawsuit and, after negotiations, settles for $150,000 (the proportionate value of the strip at the time of purchase) plus legal fees and interest. Her owner's title insurance policy also covers a portion of her losses and legal expenses, highlighting its critical role.

Example 2: Property Subject to Undisclosed Life Estate

A developer, Mark, acquires a residential property for $750,000, intending to redevelop it into a multi-family complex. The general warranty deed states a fee simple conveyance. However, a distant relative of the previous owner comes forward with a valid, but obscure, document proving a life estate in favor of an elderly family member, which was not discovered in the initial title search. This life estate means the previous owner (Mark's grantor) did not have the full fee simple seisin to convey.

1. Breach Event: The grantor lacked the full fee simple estate at the time of conveyance, as a life estate holder still had a valid interest.Development Halt: Mark's redevelopment plans are immediately halted as he cannot obtain clear title or possession until the life estate terminates or is purchased.Resolution and Damages: Mark's title insurance company steps in, either by negotiating a buyout of the life estate holder's interest or by compensating Mark for the diminished value of his property, potentially up to the full purchase price if the life estate renders the property unusable for his purposes. The grantor would also be liable for breach of seisin.

Example 3: Boundary Dispute Leading to Partial Seisin Loss

An investment group purchases a large rural tract for $2.2 million, planning a recreational development. The deed specifies 200 acres. After closing, a new survey commissioned for development purposes reveals that a long-standing fence line, previously assumed to be the boundary, actually encroaches 5 acres onto a neighboring property. The neighbor successfully asserts ownership of these 5 acres through a quiet title action, demonstrating adverse possession over many decades. The grantor did not have seisin over these 5 acres.

1. Quantification of Loss: The investment group effectively lost 5 acres out of 200, representing 2.5% of the total land area.Damages Calculation: The group can claim 2.5% of the purchase price, which is 0.025 * $2,200,000 = $55,000, plus interest and legal costs, from the grantor for breach of the Covenant of Seisin.Title Insurance Role: Their owner's title insurance policy would also provide coverage for this loss, covering the financial impact and potentially assisting with legal defense against the neighbor's claim.

Navigating Seisin in Modern Transactions

While the legal principles of the Covenant of Seisin are ancient, their application in modern real estate investment remains highly relevant. The complexity of property records, the potential for unrecorded interests, and the increasing sophistication of investment strategies necessitate a proactive approach to title assurance.

Role of Title Insurance

Title insurance has become the primary mechanism for protecting against breaches of title covenants, including seisin. Unlike other forms of insurance that protect against future events, title insurance protects against past events that could affect current title. An owner's policy, purchased for a one-time premium at closing, provides coverage up to the purchase price of the property for losses incurred due to covered title defects. This includes legal defense costs if a claim against the title arises.

Best Practices for Investors

• Always Demand a General Warranty Deed: Unless there are specific, well-understood reasons to accept a lesser deed, always insist on a general warranty deed to maximize protection.Secure Owner's Title Insurance: Never forgo an owner's title insurance policy. It is your best defense against unforeseen title defects and breaches of covenants.Engage Competent Legal Counsel: A real estate attorney can provide invaluable guidance in reviewing title documents, identifying potential risks, and advising on the implications of title covenants.Understand Local Laws: Property law, including the interpretation and enforceability of title covenants, can vary significantly by state and even county. Ensure your team is knowledgeable about local regulations.Maintain Records: Keep meticulous records of all transaction documents, including deeds, title policies, surveys, and any correspondence related to title matters.