Where Seller Conveys Property Via A Special Warranty Deed It Is Not Liable To The Buyer For Prior Sold Taxes Or Unredeemed Tax Liens

After the title insurer in Chicago Title Ins. v. Aurora Loan Services, LLC, 2013 IL App (1st) 123510 (Aug. 31. 2013) paid its insured the the policy limit and appraised value of the property that was lost to a tax deed, it filed suit against the seller who acquired its interest via a judicial deed following a mortgage foreclosure. It argued that the seller, who transferred title via a special warranty deed, breached its special warranty that it did not do anything or suffer anything to be done to encumber the property when it failed to redeem a tax sale that was held prior to its ownership of the subject property and did not notify the buyer of a pending tax deed proceeding that ultimately divested it of its interest in the property. The trial court dismissed the complaint. On appeal, the court examined the differences between a warranty deed and a special warranty deed by observing that [a] warranty deed is a stipulation by the grantor in which he guarantees to the grantee that title to the property at issue will be good and that the grantor’s possession is undisturbed. A special warranty deed is a deed in which the grantor covenants to defend the title against only those claims and demands of the grantor and those claiming by and under the grantor. A special warranty is a limited form of warranty and recovery is only available if the defect in title occurs because of an act of the grantor. It does not render the grantor liable for defects in the title based on events that transpired when the property was in the hands of a prior titleholder. Based on this understanding, the court found that the seller’s special warranty placed the buyer on notice that it warranted only against title defects that were caused or created by its own conduct and that it was not responsible for defects arising before it acquired title. The court focused on the deed language that the seller has not done or suffered to be done. The court said that suffered in this context doesn”t mean tolerated. It means caused to be placed, which the seller did not do. The grantor did not create the lien; the state did. But it suffered it to be created by not paying the taxes. If the present owner’s predecessor didn”t pay the taxes, and that is why the lien arose, the owner has no implied obligation to cure it, or any other flaw in title the owner didn”t create. Thus, the scope of the special warranty included only encumbrances the seller caused and does not include any pre-existing encumbrances. The court was also not persuaded by the argument that seller warranted to pay back taxes because the special warranty deed exempted only the taxes not yet due and payable. When the state sold the taxes to the tax buyer the taxes were paid. Therefore there were no taxes due and payable for that tax period.

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