Municipalities own real estate that they convey to third parties in a variety of situations. Most often this occurs in the context of conveying property the town acquired because of unpaid property taxes back to the taxpayer once the past due amounts have been paid in full, but also in the context of municipal-owned property in industrial parks and other property suitable for development. Almost always a municipal quitclaim deed is the appropriate instrument for conveying tax acquired property. A municipal quitclaim deed releases any right, title, or interest the municipality may have in the described property to the identified grantee, without any covenants or guarantees of title. Put another way, such deeds do not contain any representation or warranty by the municipality as to whether or not it actually has title to the described property or whether or not the property is subject to any lien or encumbrance. Muni-quitclaim deeds are truly the “buyer beware” of deed forms.
Nonetheless buyers of property and other parties acquiring title to real property from a municipality often ask for a warranty deed or a quitclaim with covenant deed. The rationale these buyers offer is that they, unlike taxpayers paying back taxes, are paying real money for the property and they are entitled to know that the municipality has title and that it is free and clear of liens and encumbrances. These buyers are in effect asking the municipality to perform the buyer’s due diligence and search title to the property. For a number of reasons, this burden switching is inappropriate and improperly places the burden of insuring title on the municipalities’ residents.
While municipal quitclaim deeds offer nothing in the way of promises to the buyer, other forms of deeds—for illustration purposes, warranty deeds and quitclaim deeds with covenant—provide a number of such promises. A warranty deed is the seller’s promise that it has the interest in the property it is purporting to convey to the buyer; that there are no encumbrances on the property, such as mortgages, liens, or easements, other than those referenced in the deed; and that the buyer’s possession of the property will not be interrupted by someone with a superior interest in the property. Most importantly, the seller promises that its title to the property is free of defects, and that it will defend the buyer’s possession of the property against the claims of “all persons,” even with respect to defects or claims that may have arisen years before the seller acquired the property. By giving a warranty deed, then, a seller takes on potential liability not just for what the seller has done during his or her period of ownership, but also for claims arising well before he or she acquired the property, of which it likely has no knowledge. Quitclaim deeds with covenant offer similar promises, with the exception that the guarantee of no defects or claims covers only that period of the seller’s ownership.
A municipality often acquires property without having performed a complete title examination and is thus unable to know whether it has title to the property, whether such title is subject to any liens or encumbrances, and whether others have claims to the property. Only by a thorough title examination is the municipality able to answer these questions and to meaningfully evaluate what such promises might entail for potential future liability. Even though a tax foreclosure provides that a municipality owns a property free and clear of any encumbrances, the title standards require either a five- or fifteen-year waiting period for clean title, depending on when the period of redemption expired.
Even though the possibility of selling a property for more money exists when a deed other than a quitclaim is given, absent an action to quiet title, the risks outweigh the benefits.
Updates and commentary from Preti Flaherty's municipal law attorneys.
