199
VIOLATIONS OF ZONING ORDINANCES, THE COVENANT
AGAINST ENCUMBRANCES, AND MARKETABILITY OF
TITLE: HOW PURCHASERS CAN BE BETTER PROTECTED
Jessica P. Wilde
∗
I. INTRODUCTION
Zoning ordinances function as an exercise of the
government’s general police power, sustaining the enjoyment, health,
and safety of the public. They are important in order to maintain
property values and protect a neighborhood’s quality and
environment.
1
Zoning ordinances prevent people from using their
property in a way that would make a neighborhood less enjoyable.
2
State statutes often provide civil and criminal penalties for failing to
comply with zoning ordinances.
3
Noncompliance with existing
ordinances may be of concern to a buyer who buys a parcel of land
∗
J.D. candidate, Touro Law Center, May 2007; B.S., Brigham Young University, May 2004.
1
See ROBERT H. NELSON, ZONING AND PROPERTY RIGHTS: AN ANALYSIS OF THE
AMERICAN SYSTEM OF LAND USE REGULATION 11-12 (1977).
2
Id. They are often enacted for safety purposes; for example, a zoning ordinance prevents
commercial use in a residential neighborhood or may require a permit or certificate of
occupancy before a building is occupied. In addition, a zoning ordinance may be in the form
of a building code, requiring that the building maintain certain requirements for fire code
purposes. Ordinances serve an array of important functions in order to maintain the value
and enjoyment of a neighborhood, as well as facilitate the safety and health of the public.
3
Adam Forman, Comment, What You Can’t See Can Hurt You: Do Latent Violations of
a Restrictive Land Use Ordinance, Existing Upon Conveyance, Constitute a Breach of the
Covenant Against Encumbrances? 64 ALB. L. REV. 803, 806 (2000) (discussing latent
violations with respect to the covenant against encumbrances and how purchasers can seek
to protect themselves).
200 TOURO LAW REVIEW [Vol. 23
unaware that the use of the property violates an ordinance. A buyer,
upon discovering a violation prior to closing, may want to rescind the
contract. Similarly, a buyer may be frustrated if he or she discovers a
violation when trying to sell the property at a later date, making the
property difficult to sell. Also, perhaps a subsequent purchaser seeks
to make a change to the property, discovers a violation, and then must
pay a substantial amount of money to fix the defect. When one
discovers a violation, what often emerges is the crossroad between
zoning ordinances and the covenant against encumbrances in a
general warranty deed, as well as the contract guarantee to convey
marketable title.
A covenant against encumbrances is a present covenant.
4
When an encumbrance exists at the time of conveyance, there is a
defect on the title and the grantor has breached the covenant against
encumbrances. If a subsequent purchaser discovers a violation after
the deed has been granted and his possession is disturbed or he has to
pay off the encumbrance, he may hold the grantor liable and receive
nominal damages.
5
However, if a purchaser discovers a violation of a
zoning ordinance prior to the conveyance, then he may seek to
rescind the contract prior to closing on the theory that the seller
would be conveying unmarketable title due to the existing violation.
6
4
20 AM. JUR. 2D Covenants, Conditions, and Restrictions § 89 (2004). Encumbrances
may include violations of zoning ordinances, as well as mortgages, liens, easements, and
covenants. An encumbrance has also been defined as “every right to, or interest in, the land,
to the diminution in value of the estate, but consistent with the passage of the fee by the
conveyance.” Id. § 87.
5
Id. § 131.
6
However, a seller may be afforded the opportunity to remove the encumbrance within a
reasonable amount of time so that he can convey title that is free and clear from
encumbrances. 77 AM. JUR. 2D Vendor and Purchaser § 86 (2004). See also Pamerqua
2007] MARKETABLE TITLE AND ENCUMBRANCES 201
Marketable title
7
is title free from reasonable doubt in which a
reasonable person would not hesitate to purchase the property.
8
Marketable title guarantees that property is “free and clear of
encumbrances.” Furthermore, “ ‘encumbrances’ includes [sic] any
right to or interest in the land subsisting in another to the diminution
of its value.’ ”
9
Marketable title is a typical contract provision for
real estate sales, and is presumed when absent from the contract.
10
A
purchaser, upon discovering a violation prior to closing, might seek
rescission based upon breach of contract.
Claims by a purchaser brought against a seller for violations
of ordinances may therefore arise in the form of either the failure to
convey marketable title or the breach of the warranty against
encumbrances. These two remedies, although the former based in
contract and the latter based on a general warranty deed, are similar
in substance.
11
When a purchaser discovers a violation and is
deciding what claim to bring, the answer is based largely on timing.
Additionally, courts find that unmarketable title exists when there is
Realty Corp. v. Dollar Serv. Corp, 461 N.Y.S.2d 393, 395 (App. Div. 1983) (“[W]here it
reasonably appears that the vendee will be plagued by zoning problems when he purchases
the property, a title defect does exist and the vendee is entitled to demand that the vendor
rectify the same or return any moneys paid on account.”).
7
See infra notes 41-42 and accompanying text.
8
See Vendor and Purchaser, supra note 6, § 105.
9
Id. § 147.
10
Voorheesville Rod & Gun Club, Inc. v. E.W. Tompkins Co., 626 N.E.2d 917, 920
(N.Y. 1993) (“[I]n the absence of a stipulation to the contrary, it is presumed that a
marketable title is to be conveyed.”).
11
A primary difference between the two is that the contractual guarantee to convey
marketable title is made when the contract is signed and ceases at the time of conveyance. A
purchaser who, prior to closing, discovers a violation, may seek to rescind the contract
because the seller would be unable to convey marketable title. On the other hand, the seller
warrants that there are no encumbrances affecting title when the deed is conveyed. A
purchaser who, subsequent to closing, discovers a violation, may seek to bring a claim based
upon the covenant.
202 TOURO LAW REVIEW [Vol. 23
an existing encumbrance.
12
The promise to convey marketable title
and the warranty that there are no encumbrances on the title are
closely related, therefore they will be discussed together.
Although the contract and warranty creates remedies that seek
to protect a buyer, unfortunately, in many instances, the buyer is left
unprotected. The longstanding common law doctrine of caveat
emptor, or “buyer beware,” led to the use of covenants so buyers
could protect themselves.
13
While most states have departed from the
caveat emptor rule, sellers often do not have the duty to make
representations to the buyer concerning violations of restrictions and
ordinances.
14
Some states continue to adhere to the caveat emptor
rule, in which the seller does not have the duty to make
representations to the buyer concerning the property.
15
The purchaser
has the responsibility for determining whether the existing land uses
comply with municipal ordinances by inspecting the property and by
seeking a title report. The seller does not have to disclose violations,
whether they are material or latent, and does not have to make any
representations about the continued use of the land.
16
Misrepresentation law also leaves gaps that result in a failure
12
The standard contract provision states that the sellers shall convey marketable title, free
and clear of all encumbrances except for those certain ones that are specified. See Vendor
and Purchaser, supra note 6, § 147.
13
67 AM. JUR. 2D Sales § 638; see Colonial Capital Corp. v. Smith, 367 So. 2d 490, 492
(Ala. Civ. App. 1979) (“The doctrine of caveat emptor generally is applicable to the sale of
real estate in this state. Except in cases of fraud, the only protection of title afforded a
purchaser is the covenants contained in the deed.”).
14
Eric T. Freyfogle, Real Estate Sales and the New Implied Warranty of Lawful Use, 71
C
ORNELL L. REV. 1, 2 (1985).
15
See infra Part IV.B.
16
Freyfogle, supra note 14, at 1.
2007] MARKETABLE TITLE AND ENCUMBRANCES 203
to protect an innocent purchaser.
17
The duty to discover violations is
largely placed on the buyer. Yet many violations are difficult to
discover, even after obtaining a title report from a title insurance
company. The difficulty arises largely from the lack of reliable and
consistent municipal records. Many courts have held that violations
of ordinances that are hidden, unknown or latent are not
encumbrances within the scope of the covenant.
18
Furthermore,
courts have held that latent violations of ordinances have no affect on
marketable title, leaving a buyer without the ability to rescind the
contract.
19
This Comment discusses the types of violations that have not
been encompassed within the covenant against encumbrances or the
scope of the marketable title guarantee, and how purchasers can be
better protected. Part II discusses the case law history involving the
development of the covenant against encumbrances and the guarantee
to convey marketable title.
20
Part III evaluates examples of violations
of ordinances that have not been encompassed within the covenant
against encumbrances and marketable title, thereby creating an
exception to the general rule.
21
Then, Part IV explores the duties on
buyers and sellers with respect to disclosure and discovery of
violations. Part IV also discusses the caveat emptor doctrine and how
it implicates the duty on sellers to make disclosures about the lawful
17
Id. at 5-16 (discussing misrepresentation law and the difficulty in applying it in
instances where there have been violations of ordinances).
18
See infra Part III.A (discussing building code violations).
19
See infra Part III.B (discussing latent violations).
20
See infra Part II.
21
See infra Part III.
204 TOURO LAW REVIEW [Vol. 23
use of their property.
22
In addition, Part IV introduces the
implications of title insurance companies and their duties. Finally,
Part V will explore what can be done in the future to better protect
purchasers.
23
Specifically, purchasers should be aware that in many
jurisdictions a seller has no duty to disclose violations of ordinances
and regulations, and that purchasers should seek warranties or
promises to disclose from sellers.
24
Also, an implied warranty of
lawful use should be implemented so purchaser can be better
protected.
25
This Comment concludes that there is a need in the area of
property law for purchasers of real estate to be better protected when
the land purchased is in violation of ordinances or regulations.
Today, purchasers carry a heavy burden even though sellers are often
in a better position to have more knowledge of existing violations.
Although courts have showed sympathy to unprotected buyers,
26
the
trend among the courts to narrow the scope of the covenant against
encumbrances and the contract to convey marketable title places
buyers at a loss. The covenant and scope of marketable title must not
be sliced away, leaving purchasers unprotected. Furthermore, sellers
should have a higher duty placed on them to warrant the existing use
of their property and any violations thereof. An implied warranty of
lawful use is a potential avenue for recovery.
27
22
See infra Parts IV.A-B.
23
See infra Part V.
24
See infra Part V.A.
25
See infra Part V.B.
26
This is shown by the departure from the caveat emptor rule.
27
See infra Part V.B.
2007] MARKETABLE TITLE AND ENCUMBRANCES 205
II. THE DEVELOPMENT OF THE COVENANT AGAINST
ENCUMBRANCES AND MARKETABLE TITLE IN CASE LAW
Part II will discuss, as developed through extensive case law,
how zoning ordinances affect title, beginning with the “grand daddy”
case of Lincoln Trust Co. v. Williams Building Corp.
28
The majority
rule that a mere zoning ordinance does not constitute an
encumbrance, but a violation of a zoning ordinance does constitute an
encumbrance for the purposes of marketable title and the covenant
against encumbrances, will be explained. Cases holding that a
violation of a zoning ordinance constitutes an encumbrance will be
discussed in section A.
29
Section B will discuss a jurisdiction that has
departed from the general rule.
30
Finally, Part II will provide the
framework for how basic violations of zoning ordinances affect title
and the covenant against encumbrances.
Lincoln Trust, a New York Court of Appeals decision, is one
of the leading cases on zoning ordinances and its effect on title. A
vendee contracted for the sale of certain real estate in New York City,
which was to be conveyed “free from all encumbrances.”
31
Yet, a
zoning law restricting the use for residential purposes had been
passed a month prior to the date of contract.
32
The defendant
purchaser sought to rescind the contract so the plaintiff brought an
action for specific performance.
33
The court granted specific
28
128 N.E. 209 (N.Y. 1920).
29
See infra Part II.A.
30
See infra Part II.B.
31
Lincoln Trust, 128 N.E. at 209 (quotation omitted).
32
Id. at 209-10.
33
Id. at 209.
206 TOURO LAW REVIEW [Vol. 23
performance and in reaching its decision, held that municipalities
must make certain resolutions and consider the “public health,
welfare, convenience and common good” in exercising its police
power.
34
The court found that courts should not interfere with the
exercise of the police power,
35
which includes the regulation of the
use of property.
36
The impact of Lincoln Trust is “that where a person agrees to
purchase real estate, which, at the time, is restricted by laws [and]
ordinances, he will be deemed to have entered into the contract
subject to the same.”
37
In other words, an ordinance on its face does
not constitute an encumbrance.
38
In comparison, easements and
private covenants do constitute encumbrances.
39
This is perhaps due
to the fact that in a private covenant, the entity being benefited is a
private landowner, as opposed to a governmental entity.
40
Although municipal, state, and governmental ordinances on
their face do not constitute encumbrances, the question of whether a
violation of such an ordinance constitutes an encumbrance does arise.
In other words, does a violation of an ordinance breach the covenant
34
Id. at 210.
35
The court lists numerous examples of when a municipality has been able to limit and
prohibit the use of certain property. See id.
36
Lincoln Trust, 128 N.E. at 209-10 (citing Hauser v. No. British & M. Ins. Co., 100 N.E.
52 (N.Y. 1912)).
37
Id. at 210.
38
See generally George P. Stephan, Comment, Public Land Use Regulations and
Marketability of Title, 1958 W
IS. L. REV. 128 (1958).
39
See generally Allison Dunham, Effect on Title of Violations of Building Covenants and
Zoning Ordinances, 27 R
OCKY MTN. L. REV. 255 (1955).
40
See Chesebro v. Moers, 134 N.E. 842 (N.Y. 1922). Furthermore, when a landowner
subdivides parcels with a restriction imposed upon conveyance, it has previously been held
that negative easements were created. See id. at 843. This history might provide an
explanation why covenants on their face constitute encumbrances.
2007] MARKETABLE TITLE AND ENCUMBRANCES 207
in a deed against encumbrances? Additionally, does a violation of an
ordinance render title unmarketable, such that a purchaser may
rescind the contract prior to closing?
A. Cases Finding Title Unmarketable or a Breach of
the Covenant Against Encumbrances Where the
Property Violates an Ordinance
The cases discussed in this section hold that a breach of a
zoning ordinance renders title unmarketable and is a violation of the
covenant against encumbrances. Unmarketable title is title “that a
reasonable buyer would refuse to accept because of possible
conflicting interests in or litigation over the property.”
41
A buyer
should not be forced to take title that is subject to doubt, and title is
doubtful when it exposes one to litigation.
42
Unlike the covenant
against encumbrances, in a suit alleging unmarketable title, only
private covenants and violations of zoning ordinances are
encumbrances. Sellers have the opportunity up until the time of
closing to remedy a lien or an existing mortgage (which is usually
satisfied at closing).
43
In Moyer v. DeVincentis Construction Co.,
44
a case decided
thirteen years after Lincoln Trust, the Pennsylvania Supreme Court
held that a violation of a zoning ordinance rendered the title
41
BLACK’S LAW DICTIONARY 711 (2d pocket ed. 2001).
42
Speakman v. Forepaugh, 44 Pa. 363, 371 (1863); see also 1 JOSEPH RASCH, NEW YORK
LAW AND PRACTICE OF REAL PROPERTY § 22:1 (2d ed. 1991) (describing marketable title as
“merely one that is free from encumbrances and free from reasonable doubt as to any fact or
point of law upon which its validity depends”).
43
See supra note 6.
44
164 A. 111 (Pa. 1933).
208 TOURO LAW REVIEW [Vol. 23
unmarketable.
45
After contracting to purchase a home, the plaintiff
learned that an existing encroachment violated a zoning ordinance.
46
The ordinance stated that if there was a violation, “appropriate
proceedings may be had to prevent the occupancy of the building and
prevent the illegal construction, maintenance or use.”
47
This
validated the court’s position that such ramifications would perhaps
expose the purchaser to subsequent litigation. Equally important was
the court’s characterization of this encroachment as “substantial.”
48
The court apparently inquired into the severity of the violation in
determining whether it will subject one to litigation.
Many courts agree with Moyer and have held that a violation
of an ordinance renders title unmarketable. In 1951, the Supreme
Court of Kansas, in Lohmeyer v. Bower,
49
held that the violations of
an ordinance and a restriction encumbered the title as to “expose the
party holding it to the hazard of litigation and make such title
doubtful and unmarketable.”
50
A seller agreed to purchase a lot and
later found out that the house was in violation of a city ordinance that
required buildings to be erected not more than three feet from the side
or rear of the lot.
51
The home was standing eighteen inches from the
45
Id. at 112.
46
The zoning “ordinance required the building to be set back at least twenty-five feet
from the street when it was, in fact, set back only twenty-two feet . . . .” Id. at 111.
47
Id. at 111.
48
“Any substantial encroachment of a building upon adjoining land of a private owner or
the public renders the title to the land on which the building is located unmarketable . . . .”
Id. at 112.
49
227 P.2d 102 (Kan. 1951).
50
Id. at 110.
51
Id. at 104.
2007] MARKETABLE TITLE AND ENCUMBRANCES 209
boundary of the lot.
52
Furthermore, there was a violation of the
restriction requiring a two-story house.
53
The Lohmeyer court
explained that the mere existence of the ordinance did not constitute
an encumbrance; yet, a violation of the ordinance did.
54
Although the
contract excepted the restrictions of record, “it is the violation of the
restrictions imposed by both the ordinance and the dedication
declaration, not the existence of those restrictions, that renders the
title unmarketable.”
55
Similarly, in Hartman v. Rizzuto,
56
Hartman owned two lots
and his application was accepted so he could build a duplex on the
front half of one of the lots.
57
Then Hartman entered into a contract
to sell the rear half of the lot.
58
It provided that they enter into an
agreement whereby the “ ‘title to said premises is to be shown free
and clear of incumbrances [sic]’ ” and “if title ‘shall not prove
marketable’ and seller not be able to perfect the same within 90 days,
‘the purchaser shall have the option of . . . receiving back said deposit
and shall be released from all obligations hereunder.’ ”
59
A city
ordinance required the building to have a rear yard space of twenty-
five feet, which included most of the distance of the rear half of the
52
Id.
53
This was a Berkeley Hills Addition covenant and for our purposes, is not relevant. A
covenant does not need to be violated in order to constitute an encumbrance. See Dunham,
supra note 39, at 256 (“[I]t is immaterial whether the existing structure conforms to or
violates the covenant; in either event the covenant is a defect in title.”).
54
Lohmeyer, 227 P.2d at 108.
55
Id. at 110.
56
266 P.2d 539 (Cal. Ct. App. 1954).
57
Id. at 540.
58
Id. at 540-41.
59
Id. at 541.
210 TOURO LAW REVIEW [Vol. 23
lot.
60
The buyer sought his deposit and the seller instituted the action
to recover the money; the buyer cross-complained seeking
rescission.
61
The appellate court affirmed the trial court’s granting of
rescission.
62
The court explained that the piece of land was of no use
to the buyers and all they would be able to do was to resell the
property and explain to prospective buyers that the lot could not be
used for a building.
63
In comparison to Moyer,
64
the Hartman court
stated that the restrictions “substantially interfere with many uses
which an owner reasonably might wish to make of the property . . .
.”
65
Thus, both courts considered the materiality of the violation.
66
Also, in Oatis v. Decluze
67
and Wilcox v. Pioneer Homes,
Inc.,
68
the Louisiana and North Carolina courts held that a violation
of an ordinance constituted an encumbrance and rendered the title
unmarketable.
69
In Oatis, the property was zoned “residential” under
a New Orleans ordinance, although the building constructed upon it
contained three apartments, thus constituting a violation.
70
At issue
in Wilcox was a city ordinance that required a minimum side lot of
fifteen feet, although the house was slightly over three feet from the
60
Id. at 540.
61
Hartman, 266 P.2d at 541.
62
Id.
63
Id.
64
See supra notes 44-48 and accompanying text.
65
Hartman, 266 P.2d at 541.
66
Id. at 542 (stating that the violations were “deemed material”).
67
77 So. 2d 28 (La. 1954).
68
254 S.E.2d 214 (N.C. Ct. App. 1979).
69
Oatis, 77 So. 2d at 30; Wilcox, 254 S.E. 2d at 216.
70
Oatis, 77 So. 2d at 29. The issue in the case turned on whether the apartments were
constructed prior to or subsequent to the adoption of the ordinance. If they were erected
after the adopted, this resulted in a violation that affects the title. Id. at 30.
2007] MARKETABLE TITLE AND ENCUMBRANCES 211
property line.
71
The court held that the violation discovered post-
closing constituted an encumbrance within the meaning of the
warranty.
72
Generally, courts find violations of ordinances to breach
the covenant against encumbrances, as well as render title
unmarketable.
73
B. A Deviation From the Majority Rule: Georgia’s
Holding That an Ordinance Violation Does Not
Constitute an Encumbrance
The State of Georgia has deviated from the general rule that
violations of ordinances constitute an encumbrance. The Supreme
Court of Georgia decided a case in 1991, Barnett v. Decatur,
74
which
has received a great deal of attention in this area of the law. The
Decaturs purchased a one-acre piece of property and subsequently
discovered that the lot was in violation of the Fayette County
ordinance that requires lots to have a minimum size of five acres.
75
The Decaturs sued the seller for the purchase price.
76
The Supreme
Court of Georgia, reversing the court of appeals, held that the
71
Wilcox, 254 S.E.2d at 214. This was also in violation of a restrictive covenant that
provided “no structure shall be located less than 7 feet from the side lines of the lot.” Id.
72
Id. at 216.
73
See Venisek v. Draski, 150 N.W.2d 347 (Wis. 1967) (finding an ordinance requiring
120-foot frontage was violated and enforcing the contract would result in an illegal act);
Smith v. Pearmain, 548 P.2d 1269 (Utah 1976) (finding a duplex in violation of existing
ordinance). Cf. Moss v. Rubenstein, 191 N.Y.S. 496 (Sup. Ct. 1921) (finding a garage
unusable under the existing ordinance).
74
403 S.E.2d 46 (Ga. 1991).
75
Decatur v. Barnett, 398 S.E.2d 706, 707 (Ga. Ct. App. 1990). The lot was originally
part of a larger parcel. A remote grantor subdivided it and the one-acre lot was sold to the
plaintiff’s grantors. The grantors sold the property to Caitlin Decatur, who conveyed it
jointly to herself and her husband. Id.
76
Id.
212 TOURO LAW REVIEW [Vol. 23
warranty of title does not include zoning matters.
77
The court relied
on Sachs v. Swartz,
78
another Georgia decision, which stated that
buyers and sellers are both presumed to know the zoning regulations
when entering into a contract for sale.
79
The court in Barnett said
that in Sachs, the zoning status of the property did not affect title.
80
Barnett suggests that a buyer has the duty to discover whether the
property he or she is about to purchase is in violation of any zoning
ordinances. What is surprising about this decision is that it was by no
means a minor violation such as a building code violation.
81
The
entire parcel was in violation, yet the Supreme Court of Georgia did
not find that the one-acre lot constituted an encumbrance.
82
Barnett, however, is a deviation from the general rule that
violations of zoning ordinances constitute encumbrances. Unlike the
Oatis
83
court and others,
84
Barnett is an exception. Barnett leads us
to Part III, where more generally accepted exclusions to the rule that
violations constitute encumbrances will be discussed. Although the
majority of jurisdictions find violations of ordinances to be
encompassed within the scope of the covenant against encumbrances,
courts in some jurisdictions hold that there are certain types of
77
Barnett, 403 S.E.2d at 47.
78
209 S.E.2d 642 (Ga. 1974); see Barnett, 403 S.E.2d at 47.
79
Sachs, 209 S.E.2d, at 645.
80
Barnett, 403 S.E.2d at 47.
81
See infra Part III.A. Building code violations are generally not encumbrances within
the scope of the covenant.
82
Barnett, 403 S.E.2d at 47.
83
See supra note 67.
84
Numerous jurisdictions hold that an existing violation of a zoning law constitutes an
encumbrance. See Wilcox, 254 S.E.2d at 216 (minimum side lot violation); Venisek, 150
N.W.2d at 350 (minimum frontage requirement); Lohmeyer, 227 P.2d at 108 (minimum side
lot violation); Hebb v. Severson, 201 P.2d 156, 158-59 (Wash. 1948) (violation of set-back
2007] MARKETABLE TITLE AND ENCUMBRANCES 213
violations that neither constitute encumbrances within the covenant
nor breach the guarantee to convey marketable title.
III. VIOLATIONS EXEMPTED FROM THE COVENANT AGAINST
ENCUMBRANCES AND MARKETABLE TITLE
Many courts have ruled out certain exceptions and found that
because some violations do not affect title, they are not encompassed
within the covenant against encumbrances. When a violation does
not affect title, then the purchaser does not have a claim under the
covenant and marketable title theories. The exceptions encompass a
wide range of violations, although the rationale behind the exceptions
is usually based upon the inherent difficulty in discovering the
violation. There are some conflicting views within the jurisdictions
regarding whether exceptions should be created based upon certain
types of violations. The first exception deals with violations of
building codes, which will be discussed in section A.
85
Another
exception, although there is conflicting authority, deals with latent
violations, which will be evaluated in section B.
86
A. Violations of Building Codes
The first of these exceptions to the covenant against
encumbrances and marketable title deals with building codes or
similar regulations. The Supreme Court of Alaska, in Domer v.
Sleeper,
87
held that where a building code violation is “unknown” or
lines); Moyer, 164 A. at 111 (set-back requirement).
85
See infra Part III.A.
86
See infra Part III.B.
87
533 P.2d 9 (Alaska 1975).
214 TOURO LAW REVIEW [Vol. 23
“hidden,” then such a violation does not constitute an encumbrance.
88
In Domer, a building suffered considerable fire damage and a
subsequent inspection revealed violations of a building code and fire
code.
89
The Alaska court relied on a case from Washington that did
not include the non-conforming condition of a building’s electrical
wiring as an encumbrance.
90
The court explained that “[t]he state
electrical inspector, may, under certain conditions, disconnect or
order the discontinuance of electrical service, but that, while it may
be an inconvenience and a restriction upon the use of the property, is
not an encumbrance.”
91
Furthermore, “[w]hile electric, plumbing,
sanitary, fire, safety, and building inspectors, and perhaps others, may
restrict or prohibit the use of property in the exercise of the police
power, . . . [this does not] constitute a breach of a covenant against
encumbrances . . . .”
92
In holding that the violation of the building
code is not encompassed within the covenant, the court stated that to
hold otherwise would impose a substantial burden on a purchaser
since violations are difficult to discover after construction has been
completed.
93
In Fahmie v. Wulster,
94
the New Jersey Supreme Court held
that an existing pipe in a stream did not constitute an encumbrance.
95
The plaintiffs purchased an auto parts business by warranty deed that
88
Id. at 12.
89
Id. at 10.
90
Id. at 11-12.
91
Id. at 12 (quoting Stone v. Sexsmith, 184 P.2d 567, 569 (Wash. 1947)).
92
Domer, 533 P.2d at 12 (quoting Stone, 184 P.2d at 569).
93
Id. at 13.
94
408 A.2d 789 (N.J. 1979).
95
Id. at 790, 792.
2007] MARKETABLE TITLE AND ENCUMBRANCES 215
included the covenant against encumbrances.
96
Subsequently, the
plaintiffs wanted to sell to a corporation and both of the parties filed
an application for a stream encroachment to construct a wall near a
brook.
97
It was at this time that the plaintiffs learned that there was
an existing pipe in the stream that was inadequate because of the size
of the culvert.
98
The plaintiffs filed an action against the sellers to
recover the expenses to install a new culvert so they could sell the
property.
99
The court held that this did not constitute an
encumbrance.
100
The Supreme Court of New Jersey stated that “[t]o expand the
concept of encumbrances . . . would create uncertainty and confusion
in the law of conveyancing and title insurance. A title search would
not have disclosed the violation, nor would a physical examination of
the premises.”
101
The building violation did not constitute an
encumbrance because a breach of the covenant against encumbrances
is shown “ ‘when the proofs establish that a third person has a right to
or an interest in the land conveyed, to the diminution of the value of
the land, though consistent with the passing of the fee by the deed of
conveyance.’ ”
102
This definition of encumbrance is narrow and it
enabled the Fahmie court to hold that the building violation did not
96
Id. at 790.
97
Id.
98
Id. The previous seller had filed for an application to place a nine-foot culvert in the
brook. The Bureau of Water Control responded by saying that this was not large enough
“and that a 16’ X 5.5’ culvert” was necessary. This was ignored and the nine-foot culvert
was installed. Subsequently, the sellers conveyed the property to plaintiffs. Id.
99
Id.
100
Fahmie, 408 A.2d at 792.
101
Id.
102
Id. at 791 (quoting Gaier v. Berkow, 217 A.2d 642 (N.J. Super. Ct. App. Div. 1966)).
216 TOURO LAW REVIEW [Vol. 23
create an encumbrance because by the limited definition, an
encumbrance only exists when there is an interest by a third party.
103
Other jurisdictions employ this same rationale. For instance,
in Domer the court pointed to the Supreme Court of Washington that
“defined encumbrance ‘to be any right to, or interest in, land which
may subsist in third persons, to the diminution of the value of the
estate of the tenant . . . .’ ”
104
Similarly, Maryland also restricts the
covenant against encumbrances to protect “the covenantee . . .
against rights or interests in the property conveyed which subsist in
third persons and diminish the value of the estate . . . .”
105
When
courts define an “encumbrance” narrowly, violations of building
codes do not create an encumbrance because there is not necessarily
an interested third party. This is perhaps one way courts have been
able to exclude building code violations as encumbrances.
The majority of jurisdictions have similarly held that
violations of building codes do not constitute encumbrances.
106
Another reason underlying this rule is that if the violations
constituted encumbrances, this would “create instability in real estate
transactions since every minor building and zoning code violation
103
See supra note 4. This definition of encumbrance is limiting when it applies to
violations of ordinances.
104
Domer, 533 P.2d at 11 (citing Hebb v. Severson, 201 P.2d 156, 160 (1948)).
105
Marathon Builders, Inc. v. Polinger, 283 A.2d 617, 621 (Md. 1971).
106
See McRae v. Giteles, 253 So. 2d 260, 261 (Fla. Dist. Ct. App. 1971) (“[T]he condition
of the premises constituting the housing code violation is not an ‘encumbrance’ within the
meaning of a warranty against encumbrances.”); Abelman v. Slader, 224 N.E.2d 569, 571
(Ill. 1967) (“[T]he existence of a building code violation does not of itself constitute a cloud
on title . . . .”); Sterbcow v. Peres, 64 So. 2d 195, 201 (La. 1953) (“With reference to the
failure to obtain a building permit, as required by the city ordinances, that of itself does not
constitute a latent defect . . . .”); see also Silverblatt v. Livadas, 164 N.E.2d 875 (Mass.
1960); Gaier v. Berkow, 217 A.2d 642 (N.J. Super. 1966); Gnash v. Saari, 267 P.2d 674
(Wash. 1954).
2007] MARKETABLE TITLE AND ENCUMBRANCES 217
would potentially cloud title.”
107
Due to the many violations of
building codes, it is impractical to treat each violation as an
encumbrance affecting title. This is certainly displayed in McRae v.
Giteles
108
where even after the county’s housing department had
found over eighty violations, a Florida court held that the violations
did not constitute an encumbrance.
109
Notably, a few states, including Wisconsin and North
Carolina, have moved away from such a rigid application of this rule.
In Brunke v. Pharo,
110
an apartment building was conveyed to buyers,
who upon purchasing, the Supreme Court of Wisconsin said were
“violators of the law,” because there was a violation of a building
code.
111
Before the property had even been conveyed, a commission
issued a certificate compelling the sellers to take action and remedy
the building code violation.
112
The court held that where an agency
has compelled enforcement requiring action to be taken to remedy the
violation, this constitutes an encumbrance.
113
Thus, the limited
holding applies to situations where a governmental agency requires a
party to fix the building in order to comply with the code or
regulation. While injured buyers have tried to rely on Brunke in
seeking relief, many times no enforcement has taken place yet and
107
FFG, Inc. v. Jones, 708 P.2d 836, 846 (Haw. Ct. App. 1985).
108
McRae, 253 So. 2d 260.
109
Id. at 260, 262.
110
89 N.W.2d 221 (Wis. 1958).
111
Id. at 222.
112
Id.
113
Id. at 223 (“[A] violation of this type of regulation with respect to which the agency
charged with enforcement has begun to take official action is an incumbrance [sic].”).
218 TOURO LAW REVIEW [Vol. 23
therefore Brunke is distinguishable.
114
Also, in Brunke, the violations
were noticed prior to conveyance,
115
which is also a distinguishing
factor pointed out in FFG, Inc. v. Jones
116
and Fahmie.
117
In addition to the Supreme Court of Wisconsin, the North
Carolina Court of Appeals, in First American Federal Savings &
Loan Association v. Royall,
118
held that a violation of a building code
constitutes an encumbrance.
119
A developer violated a municipal
code that required developers to connect a water system between lots
when constructing a subdivision.
120
The court held this breach to be a
violation of the covenant against encumbrances.
121
This is
distinguishable from most building code cases that do not find an
encumbrance because the failure to connect a water system is by no
means “unknown” or “hidden.”
122
Taken as a whole, most jurisdictions have held that a violation
of a building code or similar regulation does not constitute an
encumbrance.
123
Therefore, under the majority rule, when a
purchaser discovers a violation, and is perhaps subject to penalties,
fines or must take remedial action in order to comply, which may be
114
See, e.g., Gaier, 217 A.2d at 643 (“Nor are we confronted here with a situation where
prosecution was imminent when the deed was executed.”).
115
Brunke, 89 N.W.2d at 222 (“[P]rior to the conveyance, a representative of the
commission had inspected the premises and the commission had determined,
administratively, that the violations existed.”).
116
FFG, Inc., 708 P.2d at 846.
117
408 A.2d 789, 792.
118
334 S.E.2d 792 (N.C. Ct. App. 1985).
119
Id. at 796.
120
Id. at 795.
121
Id. at 796.
122
See supra note 88 and accompanying text.
123
See supra note 106.
2007] MARKETABLE TITLE AND ENCUMBRANCES 219
expensive, the purchaser is left with no remedy against the seller,
even when the seller knew of the violation. This may be devastating
to a consumer that just bought a piece of property unaware of existing
violations. One way to limit this exposure would be for a buyer to
hire a licensed engineer to inspect the property prior to signing a
contract.
B. Latent Defects Do Not Constitute Encumbrances
Another similar exception to the general rule was set forth in
Frimberger v. Anzellotti.
124
The court held that encumbrances
“cannot be expanded to include latent conditions on property that are
in violation of statutes or governmental regulations.”
125
The concept
of “hidden” or “latent” violations expands beyond building code
violations, as is evident in the following cases.
1. Frimberger v. Anzelloti
Frimberger involved a tidal wetlands violation (as opposed to
a building code violation).
126
A predecessor in title subdivided a
piece of land for the purpose of constructing residences.
127
Because
the property was adjacent to a tidal marshland, it was subject to
statutory provisions, which dealt with wetland protection.
128
The
predecessor, DiLoreto, built a bulkhead near the wetlands and
124
594 A.2d 1029 (Conn. App. Ct. 1991). Frimberger, notably was decided the same
year the Georgia court decided Barnett.
125
Id. at 1034 (emphasis added).
126
By contrast, this is different from a municipal zoning ordinance.
127
Frimberger, 594 A.2d at 1031.
128
Id. (concerning the preservation of tidal wetlands due to the loss of much of the
wetlands in Connecticut).
220 TOURO LAW REVIEW [Vol. 23
constructed a dwelling.
129
He transferred the property to the
defendant,
130
who then conveyed the property to the plaintiff by
warranty deed “free and clear of all encumbrances but subject to all
building, building line and zoning restrictions as well as easements
and restrictions of record.”
131
The plaintiff wanted to make repairs on
the bulkhead so the State Department of Environmental Protection
(“DEP”) took a survey of the property.
132
The DEP informed the
plaintiff that there was a tidal wetlands violation and that the filled
bulkhead part of the property, together with the northwest corner of
the house, constituted an encroachment on the tidal wetlands.
133
In
order to correct this, the plaintiff was told by the DEP that he could
submit an application demonstrating the necessity for the bulkhead
and portion that went within the tidal wetlands.
134
Alternatively, the
plaintiff decided to sue the defendant for breach of warranty against
encumbrances and innocent misrepresentation.
135
In reaching its decision, the court relied on other decisions
that have held that building code violations do not constitute
encumbrances.
136
The court explained that there was authority “to
support the proposition that such an exercise of police power by the
state does not affect the marketability of title and should not rise to
129
Id.
130
This transfer was by a quitclaim deed. Id.
131
Id.
132
Frimberger, 594 A.2d at 1031.
133
Id.
134
Id.
135
Id.
136
These include the cases discussed previously. See supra notes 87-123 and
accompanying text.
2007] MARKETABLE TITLE AND ENCUMBRANCES 221
the level of an encumbrance.”
137
Relying on Fahmie, the Frimberger
court stated that an “enlargement of the covenant against
encumbrances would create uncertainty and confusion in the law of
conveyancing and title insurance because neither a title search nor a
physical examination of the premises would disclose the
violation.”
138
Hence, this case is similar to Fahmie because the
violation was “not on the land records and was discovered only after
the plaintiff attempted to get permission to perform additional
improvements to the wetlands area.”
139
Therefore, when latent
violations occur that do not show up on land records, the violation
does not constitute an encumbrance.
140
Perhaps if the DEP had not requested the plaintiff to make an
application to show the necessity of the bulkhead, but had compelled
compliance with the statute, the result would have been different.
The court focuses on the fact that “there had been no further action
taken by the DEP to compel compliance, and no administrative order
was ever entered from which the plaintiff could appeal.”
141
If action
were taken to compel compliance, the result would have perhaps
137
Frimberger, 594 A.2d at 1032. See supra notes 94-103 and accompanying text.
138
Frimberger, 594 A.2d at 1033.
139
Id.
140
The court uses the following language to define its holding:
Latent violations of state or municipal land use regulations that do not
appear on the land records, that are unknown to the seller of the
property, as to which the agency charged with enforcement has taken no
official action to compel compliance at the time the deed was executed,
and that have not ripened into an interest that can be recorded on the land
records do not constitute an encumbrance for the purpose of the deed
warranty.
Id. at 1033-34.
141
Id. at 1033.
222 TOURO LAW REVIEW [Vol. 23
been the opposite. This would have most likely been the case if the
Brunke decision from Wisconsin was followed.
142
An important
aspect of the Frimberger case is that the plaintiff was not ordered to
comply with the statute as of the date of trial, which may have
affected the outcome. Therefore, the concern of undue burden on the
buyer was not present in Frimberger.
2. Bianchi v. Lorenz
In 1997, the Supreme Court of Vermont decided Bianchi v.
Lorenz,
143
where the court had to confront the Frimberger case. The
sellers wanted to install a septic system for a four-bedroom home;
however, the technician they hired discovered that because of the
small size of the lot, it would not be feasible to install a septic system
large enough for a four-bedroom home.
144
The sellers obtained a
building permit and it provided “that all construction [was] to be
completed in accordance with the Zoning Laws of the Town of
Jericho and State of Vermont.”
145
Jericho’s zoning ordinance
required an owner to apply for a certificate of occupancy after
constructing a new home and the certificate would only be issued if
the home is found to be in compliance with building and septic
permits.
146
The zoning ordinance provided that a building could not
be occupied until the certificate of occupancy was issued.
147
142
See supra note 110.
143
701 A.2d 1037 (Vt. 1997).
144
Id. at 1038.
145
Id. (quotations omitted).
146
Id.
147
Id.
2007] MARKETABLE TITLE AND ENCUMBRANCES 223
Furthermore, the permit that the sellers obtained said that “the septic
tank was ‘to be constructed in accordance with [the] design by [the
site technician].’ ”
148
The sellers did not adhere to the technician’s findings and the
town did not issue a certificate of occupancy.
149
Subsequently, the
sellers sold to the buyers, not giving them any notification of the
defective septic system.
150
Several months later, the buyers noticed
that the portion of grass near the septic tank was “unusually lush,”
which led to surfacing “septic effluent.”
151
It was at this time that an
engineer told them that the septic tank was not in accordance with the
technician’s plans.
152
A town health officer informed them that they
must obtain a certificate of occupancy to comply with zoning laws
and in order to do so, they must replace the septic system.
153
The buyers sued the sellers to recover the costs to repair the
septic system; relief was granted.
154
The sellers argued that a
violation of a zoning ordinance is latent and not discoverable, relying
on Frimberger.
155
The sellers maintained that the violation could not
be found in land records.
156
The court relied on Hunter
Broadcasting, Inc. v. City of Burlington,
157
decided two years prior,
148
Bianchi, 701 A.2d at 1038 (quotations omitted).
149
Id.
150
Id. Sellers conveyed by a general warranty deed including the covenant against
encumbrances. Id.
151
Id.
152
Id. at 1038-39.
153
Bianchi, 701 A.2d at 1038-39.
154
Id. at 1039.
155
Id. at 1040.
156
Id.
157
670 A.2d 836 (Vt. 1995). In this case, a seller conveyed a parcel that had not received
state subdivision approval. A statute required a subdivision approval permit for the resale of
224 TOURO LAW REVIEW [Vol. 23
which held that a violation of a public health regulation that required
a subdivision permit was an encumbrance for purposes of the
covenant against encumbrances.
158
The court employed Hunter
Broadcasting by stating “a violation is not latent merely because the
purchaser examines the records of a separate agency.”
159
The
Bianchi court took the position that it does not matter what type of
public records a buyer must search in the determination of whether a
certain violation is an encumbrance for purposes of the covenant
against encumbrances.
160
Furthermore, the court focused on the fact that it is the seller’s
duty to determine whether a certificate of occupancy has been issued
to comply with the zoning ordinance. The court explained that “[i]f
no certificate has been issued, the owner must bring the property into
zoning compliance by meeting zoning permit requirements for an
occupancy permit.”
161
In effect, the court adopted the position that
sellers have the duty to determine from municipal records whether
there is an encumbrance and take the necessary measures so their
property will comply with ordinances.
162
To summarize, where there is a latent violation of a zoning
ordinance, the covenant against encumbrances is not breached. Yet,
the Bianchi court did not accept the proposition that the violation was
certain property. The purchaser sued under the covenant against encumbrances. The court
found that the failure to obtain subdivision approval was an encumbrance that affected title.
Id. at 837-89.
158
Bianchi, 701 A.2d at 1039 (citing Hunter Broadcasting, Inc., 670 A.2d at 839).
159
Id. at 1040.
160
Id. at 1040-41.
161
Id. at 1041.
162
Id. “The theory which we have adopted allows subsequent sellers and buyers to
determine whether there is an encumbrance from municipal records.” Id.
2007] MARKETABLE TITLE AND ENCUMBRANCES 225
latent, even though the violation could not be found in public records.
The court went beyond rejecting the argument that the violation was
not an encumbrance, and discussed the seller’s duty to make sure that
existing land uses are in compliance with restrictions. Bianchi could
be placed into the same category as those cases that have held that a
violation of a zoning ordinance constitutes an encumbrance.
However, when viewed in light of Frimberger, it appears to contrast
Frimberger’s departure when the violation is latent. In Bianchi, the
violation appeared to be latent, but instead of focusing on its being
latent, the court discussed the need to ensure compliance with
municipal ordinances. The Frimberger and Bianchi cases represent
the two theories in the area of latent violations. However,
Frimberger can also be viewed as being treated differently because it
was a state governmental regulation, rather than a zoning ordinance.
How far the concept of latent violations will be extended is a question
that will be answered as more courts in the future confront the
Frimberger decision.
Numerous violations of zoning ordinances and land use
restrictions have been at issue in every state. There are widespread
violations of ordinances, some of them going unnoticed for lengthy
periods of time.
163
Many violations are difficult to discover, as
illustrated in the case law concerning building code violations and
latent violations. Because of the inherent difficulty in discovering
violations and because it is not required or customary for sellers to
163
Freyfogle, supra note 14, at 1 (“With enforcement so inconsistent, land use violations
can for years remain uncorrected and even undetected.”).
226 TOURO LAW REVIEW [Vol. 23
discover violations, some courts have narrowed the scope of the
covenant against encumbrances and marketable title claims. Limiting
the scope of these avenues for relief cultivates noncompliance with
ordinances and regulations. The Bianchi court stated that it is a
seller’s duty to make sure that existing land uses are in compliance
with restrictions. If Bianchi were followed, which requires more of
sellers, it would also follow that sellers have a duty to keep their
property in compliance with ordinances and have a greater duty to
disclose. Purchasers are disadvantaged without a remedy against the
seller, and there is a higher probability that sellers will not comply
with zoning ordinances if courts continue to hold that certain
violations are not encompassed within the scope of marketable title
guarantee or the covenant against encumbrances. These exceptions
are problematic, especially in light of the permissive duty on sellers
to disclose violations.
IV. DUTIES ON BUYERS AND SELLERS: LOOKING FOR RELIEF
WHEN A SELLER DOES NOT HAVE TO DISCLOSE A
VIOLATION
Part IV illustrates the problems that purchasers face in
discovering violations of zoning ordinances and regulations, and in
addition, how other potential avenues for relief will likely fail, which
leaves purchasers unprotected. First, Part IV explores the duties that
sellers have in relation to disclosing zoning ordinance violations,
which includes a discussion relating to the caveat emptor doctrine in
section A.
164
Section B explores the departure from the caveat
164
See infra Part IV.A.
2007] MARKETABLE TITLE AND ENCUMBRANCES 227
emptor rule among the jurisdictions through either case law or via the
legislature.
165
Section B will include a discussion of some of the
legislation that has been enacted concerning the duty to disclose on
sellers, including property disclosure statutes. Second, Part IV
discusses how other potential remedies for a plaintiff, such as
recovery in tort under a theory of misrepresentation or a claim against
a title insurance company, is insufficient to protect a purchaser when
there is an existing zoning violation. Section C will evaluate the
insufficiencies of these remedies.
166
A. Caveat Emptor Rule
The duty on buyers to inspect the land is known as the caveat
emptor doctrine. The caveat emptor or “buyer beware” rule says that
in the absence of an agreement, a seller has no duty to inform the
buyers of defects in the condition of the property.
167
The doctrine
“was derived from the political philosophy of laissez-faire, which
mandated that a buyer deserved whatever he got if he relied on his
own inspection of the merchandise and did not extract an express
warranty from the seller.”
168
The rule evolved in land transactions
where “both the buyer and seller were generally farmers with similar
levels of bargaining power and the availability of the seller’s defense
165
See infra Part IV.B.
166
See infra Part IV.C.
167
Robert H. Shisler, Note, Caveat Emptor is Alive and Well and Living in New Jersey: A
New Disclosure Statute Inadequately Protects Residential Buyers, 8
FORDHAM ENVTL. L.J.
181, 184 (1996) (discussing the beginnings of the caveat emptor rule).
168
Florrie Y. Roberts, Disclosure Duties in Real Estate Sales and Attempts to Reallocate
the Risk, 34
CONN. L. REV. 1, 4 (2001) (quotations omitted). Roberts argues that sellers and
buyers should be able to contract around the seller’s duty to disclose; that it would be
economically efficient, it would promote certainty, avoid litigation, and would promote
228 TOURO LAW REVIEW [Vol. 23
of caveat emptor created a heavy incentive for the buyer to fully
inspect the property because representations and obligations made to
the buyer integrated with the deed upon delivery.”
169
Buyers, upon
discovering latent defects, could only seek legal recourse if they had
protected themselves with express warranties.
170
B. Departures From the Caveat Emptor Rule
A departure from the caveat emptor rule began in the middle
of the twentieth century.
171
When developers began to “build dozens
of homes at one time,” this evolved into the more modern real estate
marketplace.
172
As a result, “since the builder/seller is the one who
actually built the homes, superior knowledge about the structure,
property, and surrounding areas is obviously conferred.”
173
Because
the seller then has more knowledge about the property, courts moved
to protect the buyer by creating a duty to disclose material latent
defects and an implied warranty of habitability.
174
The implied
warranty of habitability was created in the courts at or about the time
the courts were abandoning the caveat emptor rule. In 1964, the
Supreme Court of Colorado was the first court to abandon the
doctrine of caveat emptor, when it held that a builder of a home
impliedly warrants that it complies with applicable building code
requirements, is built in a workmanlike manner, and is suitable for
marketability of property. Id. at 2-3.
169
Shisler, supra note 167, at 184 (footnotes omitted).
170
Id. at 185.
171
Roberts, supra note 168, at 5.
172
Shisler, supra note 167, at 185.
173
Id.
174
Id. at 185-86.
2007] MARKETABLE TITLE AND ENCUMBRANCES 229
habitation.
175
Many jurisdictions have rejected or narrowed the doctrine of
caveat emptor.
176
The Supreme Court of Alaska, in 1980, discussed
the split of authority regarding a buyer’s duty and noted that the trend
“is toward placing a minimal duty on a buyer.”
177
The court
explained that “[a] person guilty of fraudulent misrepresentation
should not be permitted to hide behind the doctrine of caveat
emptor.”
178
The court held that “a defense based upon lack of due
care should not be allowed in land sales contracts where a reckless or
knowing misrepresentation has been made.”
179
Since 1980, the
courts and legislatures have followed this reasoning and have further
curtailed the doctrine of caveat emptor. California is a forerunner by
creating a broad duty on sellers to disclose defects.
180
Most states use
a standard of materiality in defining what defects need to be
disclosed; a seller need not disclose every minor defect.
181
The courts
have primarily used an objective approach, in which a seller does not
need to disclose minor defects that would not concern “ordinary
175
Carpenter v. Donohoe, 388 P.2d 399, 402 (Colo. 1964).
176
Roberts, supra note 168, at 5 (“Within the last forty years . . . the law has taken a sharp
turn. Courts and legislatures have imposed ever increasing duties on sellers to disclose to
prospective buyers information about the property being sold.”).
177
Cousineau v. Walker, 613 P.2d 608, 614 (Alaska 1980).
178
Id. (citing Upledger v. Vilanor, 369 So.2d 427, 430 (Fla. Dist. Ct. App. 1979)).
179
Id. (citation omitted). For cases supporting this proposition see, for example, Piazzini
v. Jessup, 314 P.2d 196, 198 (Cal. Ct. App. 1957); Sorenson v. Adams, 571 P.2d 769, 776
(Idaho 1977); Fox v. Wilson, 507 P.2d 252, 266 (Kan. 1973); Kannavos v. Annino, 247
N.E.2d 708, 712 (Mass. 1969); Heverly v. Kirkendall, 478 P.2d 381, 383 (Or. 1970).
180
Roberts, supra note 168, at 5-6 (stating that in California, when a seller “knows of
facts materially affecting the value” and within the “reach of the diligent attention” of the
buyer, the seller has the duty to disclose (citing Shapiro v. Sutherland, 76 Cal. Rptr. 2d 101,
107 (Cal. Ct. App. 1998))).
181
Id. at 10.
230 TOURO LAW REVIEW [Vol. 23
sellers and buyers.”
182
In addition to courts overturning caveat emptor, legislatures
have attempted to protect buyers by enacting property disclosures
statutes.
183
Approximately thirty-six states have property disclosure
legislation.
184
While some states have enacted property disclosure
statutes and rejected the doctrine of caveat emptor, some jurisdictions
have retained the rule.
185
Massachusetts,
186
Indiana,
187
Alabama,
188
and Minnesota
189
fall within this category. New York has a property
disclosure statute, but has fallen short of protecting purchasers. In
1991, in Stambovsky v. Ackley,
190
the court stated “New York law
fails to recognize any remedy for damages incurred as a result of the
seller’s mere silence, applying instead the strict rule of caveat
emptor.”
191
Then, in 2002, the New York legislature enacted the
New York Property Condition Disclosure Act.
192
A seller may
182
Id.
183
The property disclosure statutes, each varying from one another, require the seller to
make certain disclosures about the condition of the property. See, e.g.,
IDAHO CODE ANN. §
55-2508 (2006) (including numerous questions to be filled out by the seller, which includes
conditions that might affect the clearance of title);
765 ILL. COMP. STAT. ANN. 77/35
(LexisNexis 2006) (including questions regarding what the seller has actual knowledge of).
184
Philip Lucrezia, Recent Development, New York’s Property Condition Disclosure Act:
Extensive Loopholes Leave Buyers and Sellers of Residential Real Property Governed by the
Common Law, 77
ST. JOHN’S L. REV. 401, 417 (2003).
185
Roberts, supra note 168, at 13-14. See Freyfogle, supra note 14, at 1-2 (“The caveat
emptor doctrine, despite recent criticism, remains the rule governing unlawful land usages:
the buyer has the responsibility for determining whether existing land uses are unlawful by
inspecting the property, reviewing municipal ordinances, and checking the seller’s title.”).
186
See Solomon v. Birger, 477 N.E.2d 137, 142 (Mass. App. Ct. 1985).
187
See Indiana Bank & Trust Co. v. Perry, 467 N.E.2d 428, 431 (Ind. Ct. App. 1985).
188
See Blaylock v. Cary, 709 So. 2d 1128, 1130 (Ala. 1997).
189
See Klein v. First Edina Nat’l Bank, 196 N.W.2d 619, 622 (Minn. 1972) (finding a
duty to disclose in three situations, which are very narrow).
190
572 N.Y.S.2d 672 (App. Div. 1991).
191
Id. at 675.
192
N.Y. REAL PROP. LAW §§ 460-67 (McKinney 2006). Section 462 states in pertinent
part: “[E]very seller of residential real property pursuant to a real estate purchase contract
2007] MARKETABLE TITLE AND ENCUMBRANCES 231
choose to pay a $500 credit to the purchaser and not be required to
make any disclosures.
193
Consequently, “[t]he apparent consensus is
that attorneys representing sellers are counseling their clients to
simply provide the $500 credit to buyers rather than subject
themselves to possible liability in the future.”
194
Connecticut and
Rhode Island also have property disclosure statutes that allow sellers
to pay money to remove them from the scope of the act.
195
Providing
an option for sellers to simply rid themselves of any disclosure by
paying a sum of money leaves buyers with the common law caveat
emptor rule. The real estate market tends to suggest that prospective
purchasers are “ready to make offers and waive their rights.”
196
Furthermore, some jurisdictions provide a means to allocate
the risks of disclosure. These jurisdictions allow a seller to disclaim
liability, usually by giving the seller the option of either providing a
disclosure statement or a disclaimer form containing an “as is”
shall complete and sign a property condition disclosure statement . . . to be delivered to a
buyer or buyer’s agent prior to the signing by the buyer of a binding contract of sale.”
Moreover, Section 465 provides that:
In the event a seller fails to perform the duty prescribed in this article to
deliver a disclosure statement prior to the signing by the buyer of a
binding contract of sale, the buyer shall receive upon the transfer of title
a credit of five hundred dollars against the agreed upon purchase price of
the residential real property.
193
Id.
194
Lucrezia, supra note 184, at 411-12.
195
Id. at 414; see also CONN. GEN. STAT. ANN. § 20-327c (West 2006) (“On or after
January 1, 1996, every agreement to purchase residential real estate . . . shall include a
requirement that the seller credit the purchaser with the sum of three hundred dollars at
closing should the seller fail to furnish the written residential condition report as required by
sections 20-327b to 20-327e, inclusive.”); R.I.
GEN. LAWS § 5-20.8-5(b) (2006) (“Failure to
provide the seller disclosure form to the buyer does not void the agreement nor create any
defect in title. Each violation of this statute by the seller and/or his or her agent is subject to
a civil penalty in the amount of one hundred dollars ($ 100) per occurrence.”).
196
Lucrezia, supra note 184, at 421.
232 TOURO LAW REVIEW [Vol. 23
clause.
197
Tennessee,
198
Maryland,
199
and North Carolina
200
are
among the states that have such statutes.
201
These property disclosure
statutes insufficiently protect buyers because the sellers are given full
discretion whether they choose to disclose anything to the purchasers.
Again, when the property disclosure statutes have loopholes and
gaps, the purchaser is left unprotected and must rely on the common
law, many times at the mercy of the caveat emptor rule.
202
Moreover,
property disclosure statutes typically do not require disclosure of
violations of zoning ordinances.
C. Potential Relief Under a Theory of
Misrepresentation or Against a Title Insurance
Company?
If, in many jurisdictions, a purchaser is at the mercy of the
caveat emptor rule, he or she may look to other potential avenues for
197
Roberts, supra note 168, at 20; see also VA. CODE ANN. § 55-519 (2006).
198
TENN. CODE ANN. § 66-5-202(2) (2006) states:
A residential property disclaimer statement stating that the owner makes
no representations or warranties as to the condition of the real property
or any improvements thereon and that purchaser will be receiving the
real property ‘as is,’ that is, with all defects which may exist, if any,
except as otherwise provided in the real estate purchase contract. A
disclaimer statement may only be permitted where the purchaser waives
the required disclosure under subdivision (1). If the purchaser does not
waive the required disclosure under this part, the disclosure statement
described in subdivision (1) shall be provided in accordance with the
requirements of this part.
199
MD. CODE ANN., REAL PROP. § 10-702(d) (LexisNexis 2006) (setting forth an extensive
disclaimer).
200
N.C. GEN. STAT. § 47E-4(a)(2) (2006) (“The disclosure statement shall: . . . State that
the owner makes no representations as to the characteristics and condition of the real
property or any improvements to the real property except as otherwise provided in the real
estate contract.”).
201
Roberts, supra note 168, at 20. See also 765 ILL. COMP. STAT. ANN. 77/35 (LexisNexis
2007).
202
Moreover, the case law suggests that “there is no duty to disclose zoning ordinance
violations, unless provided for in some way between the parties.” Forman, supra note 3, at
2007] MARKETABLE TITLE AND ENCUMBRANCES 233
relief. One possible avenue is under a tort theory of
misrepresentation. Also, perhaps a purchaser can look for relief from
the title insurance company that issued the title report to the
purchaser which included provisions concerning any existing
encumbrances.
As for tort misrepresentation recovery, this potential relief
may not benefit the buyer. Buyers suffer additional risks because it is
often difficult for a plaintiff to recover under a misrepresentation
theory because of the inability to prove the existence of a false
statement of fact.
203
For example:
[A]ssertions about the zoning status of property, the
permissibility of some existing or proposed use under
a zoning ordinance, a building’s compliance with
building codes, the consistency of some specified use
with a local development standard, and the need to
obtain a permit before engaging in a particular activity
have all been viewed by courts as opinions of law that
cannot give rise to tort liability.
204
Although courts have expanded misrepresentation law by
treating more of sellers’ statements as being actionable, it is still
difficult for purchasers to recover under tort misrepresentation law.
205
It is hard for a buyer to prove that he actually relied on the seller’s
817.
203
Freyfogle, supra note 14, at 6.
204
Id. (citing Davis v. Northside Realty, 299 S.E.2d 186 (Ga. Ct. App. 1983); City of
Aurora v. Green, 467 N.E.2d 610 (Ill. App. Ct. 1984); O’Brien v. Noble, 435 N.E.2d 554
(Ill. App. Ct. 1982); Scott v. Wilson, 146 N.E.2d 297 (Ill. App. Ct. 1958); Northernaire
Prods v. County of Crow Wing, 244 N.W.2d 279 (Minn. 1976)).
205
Id. at 7-8. For more information about expanding the scope of misrepresentation
liability, see Freyfogle, supra note 14, at 8-17.
234 TOURO LAW REVIEW [Vol. 23
statement and that the seller possessed the requisite scienter.
206
One
reason it is difficult to prove actual reliance is because buyers can
“check a statement’s accuracy by reviewing zoning maps, searching
deeds and encumbrances of record, or making inquiries of municipal
code enforcers.”
207
Therefore, violations are difficult to discover because a
purchaser may need to search extensive public records containing
zoning ordinances, municipal ordinances, and land use restrictions, to
prove actual reliance.
208
Requiring searches imposes a considerable
burden on buyers.
209
It is customary for buyers to contract with title
insurance companies to locate any encumbrances on the title. Yet,
often the buyer is still left unprotected because of the difficulties
inherent in public records searches. Clearly, reform is needed in
order to protect purchasers when a buyer cannot prove the requisite
elements for misrepresentation, which will be discussed.
210
Further discussion of the Bianchi
211
decision, in Vermont,
provides an example and illustration of the potential complications
jurisdictions are having with recording requirements. The Bianchi
decision caused much confusion among title examiners and town
clerks in Vermont because it was unclear exactly what type of public
206
Id.
207
Id. at 13; see, e.g., Steinberg v. Bay Terrace Hotel, Inc., 375 So. 2d 1089, 1092 (Fla.
Dist. Ct. App. 1979) (denying rescission for buyers when they could have inspected zoning
and building records prior to closing); Green, 467 N.E.2d at 613 (denying misrepresentation
claim because plaintiffs failed to make municipal inquiries); NRC, Inc. v. Pickhardt, 667
S.W.2d 292, 293-94 (Tex. App. 1984) (buyer has no right to rely on statement contrary to
recorded title).
208
See supra note 138 and accompanying text.
209
Freyfogle, supra note 14, at 13.
210
See infra Part V.
211
See supra notes 143-164 and accompanying text.
2007] MARKETABLE TITLE AND ENCUMBRANCES 235
records had to be searched.
212
The Vermont Supreme Court clearly
established that a “title examiner or attorneys must examine not only
traditionally-maintained town registries, but ill-kept town zoning and
permitting records as well.”
213
Town clerks had to come up with a
recording system that would provide permit records.
214
The problem
here is an example of the different dilemmas various states may
already have or will confront when an encumbrance constitutes a
failure to obtain a permit that will in turn represent a violation of a
municipal ordinance.
As a result, Vermont enacted a statute, explicitly overruling
Bianchi that provided: “[n]o encumbrance on record title to real
estate or effect on marketability shall be created by the failure to
obtain or comply with the terms or conditions of any required
municipal land use permit . . . .”
215
The law required town clerks to
record permits and notices of permit violations, as well as notices of
ordinance violations relating to land use.
216
Although these statutes
212
Jeremy I. Farkas, Feature, Real Property Law - - Bianchi II/S.144, 25 VT. B. J. & L.
D
IG. 57, 57 (1999).
213
Id.
214
Id.
215
VT. STAT. ANN. tit. 27, § 612 (2006).
216
VT. STAT. ANN. tit. 24, § 1154 (2006) states in pertinent part:
(a) A town clerk shall record in the land records, at length or by accurate,
legible copy, in books to be furnished by the town: . . . (6) municipal
land use permits . . . or notices of municipal land use permits . . . notices
of violation of ordinances or bylaws relating to municipal land use, and
notices of violation of municipal land use permits; (7) denials of
municipal land use permits. . . .
(b) A notice of a municipal land use permit or a notice of violation
specified in subdivision (a)(6) of this section may be recorded, and if
such notice is recorded, it shall list: (1) as grantor, the owner of record
title to the property at the time the municipal land use permit or notice of
violation is issued; (2) as grantee, the municipality issuing the permit,
certificate or notice; (3) the municipal or village office where the
236 TOURO LAW REVIEW [Vol. 23
affected how the covenant against encumbrance and marketable title
claims would be treated, it did not foreclose on the issue of the duties
of title examiners. Title examiners still continue to search municipal
permit records in order to meet their duties to their clients.
217
Purchasers may seek relief from the title insurance company when it
breaches its duties.
218
Seeking relief from a title insurance company was shown in
New England Federal Credit Union v. Stewart Title Guarantee
Co.,
219
another Vermont decision. Stewart Title issued a policy to
purchasers that excluded land use regulations, but an exception to this
included “a defect, lien or encumbrance resulting from a violation or
alleged violation affecting the land [that] has been recorded in the
public records.”
220
The purchasers wanted to sell the property, but
upon discovering a violation of a failure to obtain a permit for a
wastewater system erected twenty years prior, they were unable to
sell.
221
New England Federal Credit Union (“NEFCU”) foreclosed
on the property and issued a notice of claim to Stewart Title for the
loss of value.
222
Upon denial, NEFCU sued.
223
The Supreme Court of Vermont explained that the issue
original, or a true, legible copy of the municipal land use permit may be
examined; (4) whether an appeal of such permit, certificate, or notice has
been taken; (5) tax map lot number or other description identifying the
lot.
217
Farkas, supra note 212, at 58.
218
Id.
219
765 A.2d 450 (Vt. 2000).
220
Id. at 452 (emphasis added).
221
Id.
222
Id.
223
Id.
2007] MARKETABLE TITLE AND ENCUMBRANCES 237
depended upon the meaning of encumbrance for purposes of the title
insurance policy, as opposed to the covenant against encumbrances in
the warranty deed.
224
It is therefore necessary, the court said, to look
at the title policy and the intent of the parties.
225
The term “public
records” stated within the policy encompassed the records that would
reveal the subdivision permits or violations.
226
The court discussed
in-depth what exactly “public records” includes.
227
It pointed to an
Alaska decision that concluded that “public records” did not exclude
an order filed with the office of a registrar in Washington, D.C.
228
and
an Illinois decision that “public records” included records of the
circuit court of the county.
229
The term “public records” therefore
was not limited to municipal land records, but encompassed
subdivision permit records of the Department of Environmental
Conservation, a state agency that, pursuant to state law, imparted
constructive notice of permits or violations.
230
This result was partly
due to the fact that “ ‘Vermont’s subdivision regulations are
sufficiently precise.’ ”
231
The Vermont case, as well as others,
questioned the duties of title insurance companies in providing notice
of violations of ordinances and regulations.
224
Stewart, 765 A.2d at 453. Hunter Broadcasting had to be distinguished in that it
involved a lack of state subdivision approval that affected the warranty against
encumbrances. Id.
225
Id.
226
Id. at 455.
227
Id.
228
Id. (citing Hahn v. Alaska Title Guar. Co., 557 P.2d 143, 145-47 (Alaska 1976)).
229
Stewart, 765 A.2d at 455 (citing Radovanov v. Land Title Co. of Am., 545 N.E.2d 351,
355 (Ill. App. Ct. 1989)).
230
Id. at 455.
231
Id. at 454 (quoting Hunter Broadcasting, 670 A.2d at 840).
238 TOURO LAW REVIEW [Vol. 23
Numerous other cases, like Stewart, questioned title insurance
companies’ duty to provide notice of ordinance violations. In 1119
Delaware v. Continental Land Title Co.,
232
the court held that a
conditional use permit, requiring at least one occupant to be at least
sixty-two years old or physically handicapped, should have been
reported in the abstract of title because it was an encumbrance
affecting title.
233
Also, in Hopkins v. Lawyers Title Ins. Corp.,
234
the
court held that an agreement recorded in the county office of a
probate judge, where the agreement was between a developer and a
municipality regarding the liability for floods, was an encumbrance
under the title insurance policy issued.
235
Conversely, in Bear Fritz Land Co. v. Kachemak Bay Title
Agency, Inc.,
236
a federal wetlands permit was not an encumbrance on
title under the policy issued.
237
The Alaska court relied on its
decision in Domer,
238
stating that “[a]s with the building and fire code
violations in Domer, the wetlands designation here is not an
encumbrance: it does not give any third person a right to or interest
in the property, nor does it burden the property with a lien, interest or
servitude.”
239
The court distinguished between encumbrances
affecting marketable title and defects solely changing the market
value, in which the wetlands permit expiration fell into the latter
232
20 Cal. Rptr. 2d 438 (Ct. App. 1993).
233
Id. at 440-41.
234
514 So. 2d 786 (Ala. 1986).
235
Id. at 787, 789.
236
920 P.2d 759 (Alaska 1996).
237
Id. at 761-62.
238
Id. at 762.
239
Id.
2007] MARKETABLE TITLE AND ENCUMBRANCES 239
category.
240
In Aldrich v. Hawrylo,
241
the court held that a setback
requirement on an unfilled subdivision plan did not affect title.
242
The New Jersey court found that “[t]itle insurance policies generally
exclude from coverage the exercise of police power over matters of
land use, land division and building because such matters are said not
to be matters affecting title.”
243
Whether certain encumbrances should be included in a title
insurance policy widely varies, as case law suggests. It appears that
some courts hold that an “encumbrance” parallels the “encumbrance”
for purposes of marketable title and the covenant against
encumbrances, while other courts define “encumbrance” solely for
purposes of a title insurance policy, independent of its effect on title.
An extensive review of cases dealing with whether an
insurance company is held liable for failing to report a permit,
violation of ordinance, and so forth, in an abstract of title, is not
entirely crucial for this Comment. This is because a title insurer’s
liability depends largely upon the contract, which varies. Yet, the
standard title insurance policy excludes losses that arise from the
governmental police power.
244
Although regulations and ordinances
arising out of the legislature’s police power are excluded, the
240
Id. at 761.
241
656 A.2d 1304 (N.J. 1995).
242
Id. at 1308-09.
243
Id. at 1309. Interestingly, however, an Illinois court held that if a lawsuit is pending
regarding zoning violations, the title company has a duty to disclose such suit because it
would render the title unmarketable. Radovanov v. Land Title Co. of America Inc., 545
N.E.2d 351, 354 (Ill. App. Ct. 1989).
244
Beverly J. Quail & Gwendolyn C. Allen, Title Insurance Treatment of Zoning-Related
Regulations and the ALTA Zoning Endorsement, 30 C
OLO. LAW. 89 (2001).
240 TOURO LAW REVIEW [Vol. 23
exclusion does not apply when there is notice of a defect, lien or
encumbrance resulting from a violation or alleged violation that
affects the land.
245
This is contingent upon the notice being recorded
in the public records.
246
If there is a lack of notice due to unrecorded regulations, and
a party builds in violation of the regulations, the title company will
not be held liable.
247
Likewise, housing code violations, violations of
subdivision regulations, certificate of occupancy violations, denial of
permits, effects of environmental ordinances, and violations of
municipal ordinances are excluded from coverage due to the lack of
notice in records.
248
Given this exhaustive list, the municipal and
governmental police power should do more to require recordings of
violations, which could provide constructive notice to an innocent
purchaser. If more were required to be recorded, the “public records”
exclusion to the exception of coverage, which is typically seen in title
insurance policies, would encompass more information that could
provide a buyer with notice. This was discussed in the concurring
opinion of Bianchi.
249
Chief Justice Allen of the Supreme Court of
Vermont pointed out that municipalities do not, nor are they required
to, record certificates of occupancy.
250
Therefore, when a seller,
buyer or title examiner searches for encumbrances, each may search
245
Id.
246
Id.
247
Id. at 89-90.
248
Id. at 90.
249
Bianchi, 701 A.2d at 1037 (Allen, C.J., concurring).
250
Id. at 1042.
2007] MARKETABLE TITLE AND ENCUMBRANCES 241
for municipal records that do not even exist.
251
Chief Justice Allen
described well the problems inherent, not only in Vermont, but in
many jurisdictions that do not have well kept recording statutes.
Additionally, the term “encumbrance,” for purposes of the
covenant against encumbrances, should mean the same thing for
purposes of “encumbrance” in a title report. These inconsistencies
might allow title insurance companies to avoid liability by failing to
report violations, which might be a result of the poor records kept in
some localities.
In sum, the departure from the caveat emptor rule shows that
courts are sympathetic to purchasers when sellers possess greater
knowledge about the property. However, those jurisdictions that
have not entirely absolved the caveat emptor rule often leave
purchasers unprotected, and seeking relief from misrepresentation is
often difficult to prove. Similarly, a claim against a title insurance
company may not provide a purchaser with relief because of the
difficulty in proving reliance. While courts have moved in the
direction to protect purchasers, for purposes of violations of zoning
ordinances, the covenant against encumbrances and marketable title
guarantee has not been expanded to protect purchasers. Likewise,
misrepresentation law is insufficient to aid innocent purchasers.
Lastly, the law regarding claims by a purchaser against a title
insurance company is vague. Whether encumbrances such as zoning
violations are required to be reported in the title report is unclear,
which may be due to the fact that reporting requirements are similarly
251
Id. at 1043.
242 TOURO LAW REVIEW [Vol. 23
vague. What is required of a title insurance company depends on the
jurisdiction, but from the illustration of the case law in section C, it is
clear that there are many discrepancies and recovery from a title
insurance company might be problematic.
Also, before arriving at the presumption that a buyer is solely
responsible to discover a violation, one of the questions that must be
asked is who is in the best position to guard against the risk of loss?
When a seller has undergone building or construction of some sort,
and throughout the process discovers or knows of a violation, the
seller should have the duty to disclose this to a subsequent purchaser.
Purchasers must be aware that often a seller will have no duty to
disclose violations, and that they need to protect themselves by
seeking assurances from the sellers. This will be discussed in Part V,
as well as how the law, in the future, can better protect purchasers.
V. HOW A PURCHASER CAN BE PROTECTED IN THE FUTURE
Part V explores what can be done in the future in terms of
requiring more of a seller to disclose violations and how a purchaser
can protect him or herself. Further, Part V considers the implied
warranty of lawful use, an avenue that may be able to remedy the
problems in this area.
As previously explained, the courts and legislatures
substantially overruled the caveat emptor doctrine. Yet, sellers
generally do not have a duty to disclose violations of zoning
ordinances. This supports the proposition that the covenant against
encumbrances and marketable title claims should not be limited. The
rationale behind this is that if sellers are required to make more
2007] MARKETABLE TITLE AND ENCUMBRANCES 243
disclosures, then they should be gaining more information about
existing encumbrances, including zoning violations. Information
regarding the lawful use of their property provides sellers with the
information that they could disclose or be required to disclose to
purchasers. By holding that violations of zoning ordinances, even
latent violations, are encumbrances for purposes of the covenant
against encumbrances, then sellers will be more willing to remedy the
violations and avoid future violations.
A. Sellers Must Disclose Violations of Zoning
Ordinances and Regulations to Innocent
Purchasers
Again, the caveat emptor rule does not provide a duty to
disclose zoning ordinance violations.
252
There exists no special
fiduciary relationship between a buyer and a seller such that the seller
must disclose zoning ordinances.
253
Yet the seller is in a better
position to “know of violations or detect them.”
254
For example, in
Bear Fritz,
255
the sellers obtained a wetlands permit, failed to record
it, and knew it would expire in three years.
256
A simple disclosure
when selling to the buyers would have prevented the confusion for
the buyers when the permit expired. Similarly, in Fahmie,
257
the
seller, having knowledge of the culvert, could have informed the
252
See supra Part III.A; see also Levin v. Kissena Manor Corp., 184 N.Y.S.2d 863, 866
(Sup. Ct. 1959), aff’d, 199 N.Y.S.2d 408 (App. Div. 1960).
253
See Levin, 184 N.Y.S.2d at 866.
254
Freyfogle, supra note 14, at 51.
255
See supra notes 236-40 and accompanying text.
256
Bear Fritz, 920 P.2d at 760.
257
See supra notes 94-103 and accompanying text.
244 TOURO LAW REVIEW [Vol. 23
buyer that the culvert was defective in size and a violation of the
Bureau of Water Control
258
requirements.
The caveat emptor doctrine should be abandoned entirely.
Those jurisdictions that have not abandoned the caveat emptor rule or
have property disclosure statutes that provide sellers with a way out
should require more of sellers. If sellers were required to disclose
violations of zoning ordinances, then ordinances in effect would be
enforced and complied with. It seems “counter-intuitive that a
purchaser can potentially be held liable for a violation that is not
apparent. The loss should fall on the party who caused the violation
and not the innocent party.”
259
The Bianchi court agreed when it
stated, “the owner must bring the property into zoning compliance by
meeting zoning permit requirements for an occupancy permit.”
260
Purchasers should seek to protect themselves by employing
the following, which the courts and legislature should seek to validate
and impose: (1) contract provisions where sellers promise to disclose
violations of ordinances and regulations; (2) affirmative
representations from sellers; and (3) assurances from zoning
authorities. First, while sellers should be required to disclose more
concerning zoning violations, adding a provision in the contract that
requires a seller to represent to the purchaser any violations of a
zoning ordinance could guard against this. A buyer should “seek
representations from its seller regarding compliance with zoning
matters and insist on disclosure of any unrecorded restrictions
258
Fahmie, 408 A.2d at 791.
259
Forman, supra note 3, at 818-19 (footnotes omitted).
260
Bianchi, 701 A.2d at 1041.
2007] MARKETABLE TITLE AND ENCUMBRANCES 245
relating to the property.”
261
[W]here the contract contains a provision whereby the
seller warrants and represents that, upon purchase, the
property and its structures will not be in violation of
any zoning ordinance or regulation[,] . . . [and] where
it reasonably appears that the [purchaser] will be
plagued by zoning problems when he purchases the
property, a title defect does exist and the [purchaser] is
entitled to demand that the [seller] rectify the same or
return any moneys paid on account.
262
In Pamerqua Realty Corp. v. Dollar Service Corp.,
263
a sales
contract provided that “premises are sold and are to be conveyed
subject to . . . zoning regulations and ordinances of the city, town or
village in which the premises lie which are not violated by existing
structures.”
264
Because the contracted included the provision, it
protected the purchaser from any zoning violations.
265
Second, it is crucial that a buyer puts in a provision that
warrants that the property is not in violation of any zoning ordinance
or regulation. Buyers “truly have to keep their eyes wide open as
they are considered to have entered into the sales contract with the
knowledge that the property will be subject to zoning regulations and
ordinances.”
266
Another option for a purchaser is to tell the seller what his
261
Quail, supra note 244, at 91.
262
Forman, supra note 3, at 816 (quoting Pamerqua Realty Corp. v. Dollar Serv. Corp.,
461 N.Y.S.2d 393, 395 (App. Div. 1983)).
263
Pamerqua Realty Corp., 461 N.Y.S.2d 393.
264
Id. at 394.
265
Id. at 395.
266
Forman, supra note 3, at 820.
246 TOURO LAW REVIEW [Vol. 23
intended use of the property is and get a statement from the seller that
this use will comply with zoning ordinances. “[T]o insert in the
contract a stipulation stating the purposes for which the purchaser
intends to use the property and to obtain from the seller a
representation that the zoning ordinance does not prevent such
intended use of the property”
267
would help a purchaser in a claim of
misrepresentation.
Finally, buyers should also obtain a survey “with a
certification regarding zoning matters and, where available, a letter
from local zoning authorities addressing zoning classifications and
restrictions on development.”
268
This will allow buyers to determine
whether any latent violations exist.
Protecting against loss through contract provisions, seeking
affirmative representations from sellers, and obtaining assurances
from zoning authorities are all very important. However, there is a
concern that “ ‘the unknowing buyer of property that violates some
land use restraint’ ” will not protect himself.
269
That is why a buyer
relies on a title insurance company
270
and his or her attorney.
Attorneys should check zoning ordinances and whether they are
being complied with before a purchaser is conveyed a certain piece of
property.
271
Legal malpractice is possible where there has been a
failure to adequately protect a buyer in this type of situation.
272
267
Id. at 821.
268
Quail, supra note 244, at 91.
269
Forman, supra note 3, at 818.
270
See supra Part IV.C.
271
Forman, supra note 3, at 822.
272
Id.
2007] MARKETABLE TITLE AND ENCUMBRANCES 247
B. An Implied Warranty of Lawful Use
The best remedy to the current problem would be the creation
of a new implied warranty of lawful use to better protect buyers. The
new implied warranty should require the seller to warrant that the
existing uses of the property and any other uses described by the
seller must comply with the land use ordinances and regulations.
273
This warranty has been especially encouraged by Professor Eric T.
Freyfogle,
274
who said the following:
Many courts, it is clear, are dissatisfied today
with the application of the caveat emptor doctrine to
real estate sales. They have expressed their
dissatisfaction by seizing upon a variety of theories
that soften the doctrine’s impact on unsuspecting and
poorly advised buyers. The theories by these courts,
however, all suffer from multiple inadequacies. These
inadequacies can be best resolved, and the caveat
emptor rule best altered, through an approach not yet
used expressly by any court: the judicial development
of an implied warranty in all real estate sales contracts
that existing property and other uses described by the
seller comply with applicable land use restraints.
275
The warranty would be part of the contract,
276
and would
“restore contract law as the framework of seller-buyer dispute
resolution.”
277
It would revolve around the disclosure of the
273
Freyfogle, supra note 14, at 4; see also Forman, supra, note 3, at 818.
274
Eric T. Freyfogle is the Max L. Rowe Professor of Law at the University of Illinois
College of Law, where for the past twenty years he has taught courses on property, natural
resources, wildlife law, land use planning, and environmental law. Professor Freyfogle
received his J.D. degree, summa cum laude, from the University of Michigan Law School.
275
Freyfogle, supra note 14, at 32-33.
276
Id. at 33.
277
Id. at 5.
248 TOURO LAW REVIEW [Vol. 23
specifications of the property’s characteristics and uses.
278
The
warranty would impose a duty on the seller to identify the ordinances
and regulations to determine if they are being violated.
279
By shifting
the duty placed on the buyer to the seller, it would improve the
compliance and correction of violations,
280
and, as a result, the
governmental police power in maintaining the health, safety, and
general welfare of the public would be indirectly enforced.
Two of the benefits that could potentially result from adopting
an implied warranty of lawful use are: (1) it could relieve claims of
misrepresentation arising out of tort law when the tort elements have
been manipulated for the purpose of helping an innocent buyer;
281
and (2) it could encourage parties to comply with land use
regulations, zoning ordinances, and building codes.
282
In terms of
tort recovery, “the warranty provides a broader recovery and
eliminates the troublesome issues of knowledge and scienter,
materiality, and actual, reasonable reliance.”
283
In terms of the
covenant against encumbrances and marketability of title, buyers,
even “unsuspecting and poorly advised buyers” could rely on the
contract provision that would warrant the existing uses of the
property are lawful.
284
The duty on sellers would also be more clear
278
Id. at 33.
279
Id.
280
Freyfogle, supra note 14, at 35.
281
See supra notes 203-08 and accompanying text.
282
Freyfogle, supra note 14, at 35.
283
Id. at 34.
284
Id. at 32. See supra note 275 and accompany text; see also Forman, supra note 3, at
818 (suggesting that an implied warranty of lawful use would also be helpful in the area of
the covenant against encumbrances and marketable title area). The benefits of an implied
warranty of lawful use are that:
2007] MARKETABLE TITLE AND ENCUMBRANCES 249
and finite.
The warranty of habitability was created in an attempt to
protect purchasers at a time when the caveat emptor doctrine
prevailed.
285
Other warranties that have recently been created are the
warranties of fitness and workmanlike constructions.
286
The courts
have been willing to create new warranties where needed as the real
estate market evolves.
287
Courts have suggested that it is the seller’s
duty to make sure that the property to be conveyed is complying with
existing zoning ordinances and similar regulations.
288
As seen in
Bianchi, the court stated a seller should be sure that he has the
required permit in order to obtain a certificate of occupancy.
289
Similarly, in Iverson v. Solsbery,
290
the Colorado Court of Appeals
stated that landowners owe a duty to future owners not to reconstruct
property in violation of building codes.
291
It seems that the next
logical step is to create an implied warranty of lawful use, just as the
courts have created the warranty of habitability.
The scope of the warranty does not necessarily have to apply
[An] implied warranty of lawful use would better protect the legitimate
expectations of buyers, would greatly simplify the factual disputes in
litigation, and would provide greater commercial certainty and flexibility
for sellers by defining more precisely their responsibilities to buyers.
Id.
285
See supra note 175 and accompanying text (discussing Colorado as the first to reject
the doctrine of caveat emptor and apply a warranty of habitability).
286
Freyfogle, supra note 14, at 36.
287
Id.
288
Id. at 37.
289
See supra notes 161-62 and accompanying text.
290
641 P.2d 314 (Colo. 1982).
291
Id. at 316.
250 TOURO LAW REVIEW [Vol. 23
solely to residential property. The need for compliance in land use
restrictions applies equally to commercial and noncommercial
property, and thus the warranty could apply to both.
292
The warranty
should include “not only existing land uses, but any other uses that
the seller specifically identifies or describes.”
293
In other words, if
the seller makes assertions about the property, those become express
warranties.
294
Next, it is a possibility that the parties by agreement
could alter the warranty.
295
Moreover, an implied warranty of lawful use will become
increasingly necessary as courts continue to expand the doctrine of
misrepresentation in tort law and hold sellers liable.
296
The vague
area of the law surrounding misrepresentation among sellers could be
better solved if there was a clearer requirement in what a seller had to
represent to a potential buyer.
Again, sellers have more knowledge of the property including
its uses and violations of land use restraints.
297
“The seller also will
often possess property surveys and title abstracts and will have
greater time and opportunity to learn of the legality of existing uses. .
. . [H]is single study is more efficient than requiring all potential
buyers to repeat and thus wastefully duplicate this inquiry.”
298
In
sum, an implied warranty of lawful use would help protect buyers, as
292
Freyfogle, supra note 14, at 41.
293
Id.
294
Id.
295
Id. at 42.
296
Id. at 16.
297
Freyfogle, supra note 14, at 19.
298
Id.
2007] MARKETABLE TITLE AND ENCUMBRANCES 251
well as simplify the factual investigation involved in litigation, and
most importantly, it would define more precisely the duties a seller
has to a buyer.
299
VI. CONCLUSION
In conclusion, the covenant against encumbrances and
marketable title has had some discrepancies, which are of concern to
purchasers, unaware of violations of existing municipal zoning
ordinances at the time of conveyance. Courts generally hold that
latent violations and violations of building codes do not constitute an
encumbrance for purposes of the covenant against encumbrances and
marketable title claims. Therefore, a purchaser is without a means of
rescission or damages. Often times the seller has greater knowledge
about the existing uses of the property and any violations. However,
the doctrine of caveat emptor, although it is rejected in the majority
of jurisdictions, still leaves buyers unprotected because there is no
duty to disclose violations of zoning ordinances.
Courts must not limit the scope of the covenant against
encumbrances and marketability of title, rendering them meaningless
when there is a latent violation. Purchasers can seek to protect
themselves through the contract or by seeking representations from
the seller. But most importantly, an implied warranty of lawful use is
greatly needed to alleviate failed misrepresentation claims and fill in
the gaps when there is a latent violation of a zoning ordinance. In
addition, an implied warranty of lawful use would resolve buyer-
299
Forman, supra note 3, at 818.
252 TOURO LAW REVIEW [Vol. 23
seller disputes and specifically lay down the requirements of sellers.
It is the hope of many buyers that the property they are buying is in
compliance with any zoning ordinances or land use regulations.
Thus, the courts should recognize the need for an implied warranty of
lawful use.
