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By - Scott Aadal

What is a covenant of further assurance in New York?

A covenant of further assurance (NY state section 253 article 4) is the related promise that the grantor will do whatever is necessary to remove a defect associated with the title, such as an encumbrance if it arises.  And if the problem is not fixed, damages will be awarded. The covenant may also include what steps must be taken to ensure that the grantee has a clear title.

The express promise of doing whatever is necessary is a huge promise to put in writing.  It means that if the grantor’s title was imperfect, the grantor will do whatever is possible to rectify the situation and produce a perfect title, including paying off a mortgage, liens, etc.  For example, there may be some overlap with the covenant of general warranty in that a grantor might need to hire attorneys and pay fees in order to clear the title. More often, it means the seller will execute whichever other legal documents are necessary to make sure that title defects are fixed. However, if there is no way to fix the problem, damages will be awarded to the grantee, usually in an amount that does not exceed the value of the home. 

 

Once an express covenant has been included in a deed, it cannot be changed based on evidence external to the deed, such as an email or verbal agreement. Conversely, there is no covenant of further assurances if the grantor of the deed simply promised over the phone to do whatever was necessary to remove title defects.

 

A covenant of further assurance is often found in mortgages on commercial real estate. It’s also common in deeds of trust on residential property.

 

The purpose of a covenant of further assurance is to give lenders peace of mind by ensuring that they have recourse if there are any problems with the title to a property that they’re financing. The lender would not have this protection if it were relying solely on the title insurance policy issued by its underwriter because that policy only covers defects in existing titles, not future ones.

 

In order for this type of agreement to be valid, both parties must agree on its terms beforehand. It’s best if both parties consult with an attorney before signing anything so that no mistakes are made in the wording or any other part of this process (such as whether or not there are any outstanding loans attached to the property).

 

For the best results, you will want to work with a seasoned real estate attorney and an expert title agency like MacGregor Abstract.  When it comes to real estate transactions, you want to be certain that everything is done correctly and that there are no issues affecting your title.  This is why it is imperative that you only work with experienced professionals that will put forth the effort to ensure the transaction is smooth and effortless for both parties.