With housing inventory still lagging, sellers continue to have the upper hand.
What is a breach of warranty?
In real estate terms, a breach of warranty occurs when the transfer of title to a piece of property, sold by the seller to the buyer, fails due to ownership by a third party.
While breach of warranty means different things depending on the subject, in real estate it occurs when one of the following actions occurs with property in regards to a third party:
- The property was conveyed to a third party in part or in whole by the seller before the current sale.
- A property owner, other than the seller, conveyed the property in whole or in part to a third party.
- A third party has gained adverse possession of a property, such as squatting, prior to the date of the transfer of property.
- A third party was able to gain title to the property through a separate chain of title, such as through historic documents that prove the property was owned by a third party in the past with no transfer of ownership.
In most cases, a breach of warranty by a seller requires him or her to pay the buyer back the amount paid for the property, plus any interest. In some cases, the buyer gets to keep the property.
In addition to a breach of warranty on the whole property, you also can have a breach of warranty on just part of the property. In this case, the seller would only have to pay the buyer back for the part of the property in question and not the whole property.
Breach of warranty example
A common example of a breach of warranty is when the seller does not own the deed, such as when paying a mortgage, but sells the property to a buyer.
Upon learning about the sale of the property to the buyer by the seller, the title holder, or third party, could take possession of the property since the seller had no right to sell the property in the first place. The courts could force the seller to give the buyer back any money paid for the property, and in some cases, they might even have to pay back interest.
Find out more about real estate and what is involved in the buying and selling