Court Opinion

ID: 9408550
Source: CourtListenerOpinion
Date Created: 2023-07-13 06:05:27.204118+00
Date Added: 2024-06-11T17:20:44.533264
License: Public Domain

Michigan Supreme Court
                                                                                           Lansing, Michigan

Syllabus
                                                             Chief Justice:             Justices:
                                                              Elizabeth T. Clement      Brian K. Zahra
                                                                                        David F. Viviano
                                                                                        Richard H. Bernstein
                                                                                        Megan K. Cavanagh
                                                                                        Elizabeth M. Welch
                                                                                        Kyra H. Bolden

This syllabus constitutes no part of the opinion of the Court but has been               Reporter of Decisions:
prepared by the Reporter of Decisions for the convenience of the reader.                 Kathryn L. Loomis

                                              GALVAN v POON

             Docket No. 163741. Argued on application for leave to appeal April 5, 2023. Decided
      July 12, 2023.

              Reyes Galvan and Minhwa Kim filed an action against Yam Foo Poon, Hwai-Tzu Hong
      Poon, and Daniel Y. Poon in the Washtenaw Circuit Court, alleging fraud, misrepresentation,
      fraudulent concealment, silent fraud, innocent misrepresentation, loss of consortium, and breach
      of a warranty deed. In 2017, plaintiffs bought a condominium in the city of Ann Arbor from
      defendants, and defendants transferred title to plaintiffs via a warranty deed. The deed warranted,
      among other things, that pursuant to MCL 565.151, the property was “free from all incumbrances.”
      While renovating the condominium, plaintiffs learned of several issues with the property,
      including that there was no proper firewall between their condo and the neighboring units, and that
      one of the defendants had signed a unit-modification form indicating that a wall had been moved
      and that a neighboring unit encroached on the upstairs bathroom of plaintiffs’ unit. Because the
      absence of a firewall violated the city’s building code, the city sued plaintiffs and their adjoining
      neighbors to enforce the code and require installation of firewalls. Plaintiffs were ordered to pay
      $18,000, in part to bring the walls of their unit into compliance with the building code, and they
      also spent additional funds to remediate other problems with the property. During a jury trial,
      defendants moved for a directed verdict on plaintiffs’ breach-of-warranty claim, arguing that the
      building code violations were not an encumbrance. The trial court, Timothy P. Connors, J., agreed
      and directed verdict in favor of defendants on this claim. The jury subsequently found in favor of
      plaintiffs regarding their claims of silent fraud and loss of consortium. Galvan appealed the
      directed verdict in the Court of Appeals (BORRELLO, P.J., and SERVITTO and STEPHENS, JJ.), which
      reversed in an unpublished per curiam opinion, determining that the building code violations
      constituted an encumbrance in violation of the warranty deed. Defendants applied for leave to
      appeal in the Supreme Court, which ordered and heard oral argument on the application. 509 Mich
      938 (2022).

             In a unanimous opinion by Justice VIVIANO, the Supreme Court, in lieu of granting leave
      to appeal, held:

               A building code violation that is in existence at the time a warranty deed is executed and
      that is not yet subject to any official enforcement action does not constitute an encumbrance under
      MCL 565.151.
         1. Does a building code violation that is not yet subject to any enforcement action
constitute an encumbrance under MCL 565.151 and therefore breach a warranty deed? Deeds
transfer ownership interests in real property. MCL 565.151 governs the effect of and covenants
included in a warranty deed and provides in relevant part that the land is “free from all
incumbrances . . . .” This case turns upon the scope of the term “encumbrance.” This Court has
described encumbrances as affecting the ownership rights to or interests in a property, not the
property’s material condition. Additionally, it is a well-established rule that a governmental
regulation alone does not constitute an encumbrance. This rule reflects that there is a difference
between economic lack of marketability, which concerns conditions that affect the use of the land,
and title marketability, which relates to defects affecting legally recognized rights and incidents of
ownership. Clear title to a property can be held despite the fact that the land is subject to laws
restricting its use. Because such laws are not a burden on the title affecting rights or interests in
the property, they are not encumbrances.

        2. At issue in this case is not simply a governmental regulation but also the violation of
that regulation. While courts are split regarding whether such violations generally may constitute
encumbrances, almost no courts hold that a violation of a building code that is not the subject of
an enforcement action is an encumbrance. Some caselaw treats zoning code violations as
encumbrances because, in part, they are known and not hidden. Building code violations, by
contrast, almost always involve obscure or technical details that would not be apparent to the
parties. Because a building code violation that has not yet been the subject of enforcement action
does not affect the rights to or interests in the property and is generally hidden or at least not readily
known, it lacks the defining characteristic of an encumbrance. The fact that future enforcement
actions might lead to a lien is not enough to transform a bare violation into an encumbrance
because, to be actionable, the breach of the covenant against encumbrances must have occurred
when the covenant was made. A contrary holding would not only disregard the longstanding
meaning of “encumbrance” but would invite title disputes based on violations of building codes
that would not be discovered during a normal title search or inspection of the property.

        Court of Appeals judgment reversed, and case remanded to the trial court for reinstatement
of the order granting defendants’ motion for a directed verdict on the breach-of-warranty claim.
                                                                            Michigan Supreme Court
                                                                                  Lansing, Michigan

OPINION
                                                  Chief Justice:                Justices:
                                                   Elizabeth T. Clement         Brian K. Zahra
                                                                                David F. Viviano
                                                                                Richard H. Bernstein
                                                                                Megan K. Cavanagh
                                                                                Elizabeth M. Welch
                                                                                Kyra H. Bolden

                                                           FILED July 12, 2023

                             STATE OF MICHIGAN

                                     SUPREME COURT

  REYES GALVAN,

               Plaintiff-Appellee,

  and

  MINHWA KIM,

                Plaintiff,

  v                                                                No. 163741

  YAM FOO POON, HWAI-TZU HONG
  POON, and DANIEL Y. POON,

               Defendants-Appellants.

 BEFORE THE ENTIRE BENCH

 VIVIANO, J.
        In 2017, plaintiffs, Reyes Galvan and Minhwa Kim, purchased a condominium from

 defendants, Yam Foo Poon, Hwai-Tzu Hong Poon, and Daniel Poon. As part of the sale,

 defendants transferred title to plaintiffs under a warranty deed. Pursuant to MCL 565.151,
the deed warranted that the property was “free from all incumbrances,” among other

things. 1 It turned out that, at the time of sale, the property was in violation of a building

code requiring a firewall between condominium units. The question in this case is whether

that violation constituted an encumbrance violating the warranty deed. We hold that a

violation of a building code at the time of sale, not yet subject to any official enforcement

action, is not an encumbrance.

                       I. FACTS AND PROCEDURAL HISTORY

       The property at issue was originally part of a three-unit townhouse.            It was

subsequently converted into a single residence for a time, and the demising walls (i.e., those

separating the units) were removed. Later, when the property was again partitioned into

three separate residences, the demising walls were reconstructed but placed in different

locations. As a result, they did not form a single wall from the foundation to the roof as

required by the building code of the city of Ann Arbor (the City). In addition, the

contractors failed to install proper fire barriers behind the drywall of the units, which the

City’s building code also required.

       Plaintiffs purchased one of the units, a condominium, in 2017. They received a

warranty deed that covenanted against encumbrances.           The sellers’ disclosure form

indicated that there were no known problems regarding the unit. Plaintiffs learned of the

code violations after they began renovations on the condominium. At that time, they

discovered staining on the drywall and learned of numerous past maintenance visits to fix

1
  The statute employs the spelling of “incumbrance” in usage in 1881, when the text was
first enacted. 1881 PA 187. The preferred modern spelling is “encumbrance,” which we
use in this opinion. See Garner’s Dictionary of Legal Usage (3d ed), p 316.

                                              2
leaks.    In addition, plaintiffs learned that one of the defendants had signed a unit-

modification form indicating that a wall had been moved and that the neighboring unit

encroached on the upstairs bathroom. After hiring contractors to remediate the problems,

plaintiffs discovered that there was no proper firewall between the units.

         The City sued plaintiffs and their two adjoining neighbors in 2018 to enforce the

code and require installation of firewalls. Plaintiffs were ordered to pay $18,000, half of

which was to bring the walls into compliance with the code and half to compensate a

neighbor for the loss of a portion of her unit that was being transferred to plaintiffs to create

a proper firewall. Plaintiffs also paid $27,160 for an architect to assist in the compliance

repairs. Because plaintiffs initially lacked funds to pay the judgment, the City placed a lien

on the property. Plaintiffs, who eventually paid the judgment and for the remediation, were

forced to live elsewhere while the repairs were made.

         Plaintiffs then brought the present lawsuit against defendants, alleging fraud,

misrepresentation, fraudulent concealment, silent fraud, innocent misrepresentation, loss

of consortium, and breach of the warranty deed. At trial, a real estate appraiser testified

that the total cost of the building code violation was $30,000 and that a family could not

reside in the unit until the violations were remedied. After the close of trial, but before the

jury’s verdict, defendants moved for a directed verdict on the breach-of-warranty claim.

They argued that the building code violations were not an encumbrance. The trial court

agreed, granting defendants’ motion.         The jury subsequently found that defendants

withheld material facts about the condition of the property and were therefore liable for

silent fraud. Plaintiffs were awarded $20,802 for Galvan’s economic damages and $8,100

for Kim’s noneconomic losses.

                                               3
         Plaintiff Galvan appealed the directed verdict on the breach-of-warranty claim, and

the Court of Appeals reversed. 2 It observed that the code violations subjected plaintiffs to

the threat of litigation and made the home unmarketable and uninhabitable. The Court of

Appeals also cited various out-of-state cases in which violations of zoning ordinances were

determined to be encumbrances. Accordingly, the Court determined that the building code

violations constituted an encumbrance in breach of the warranty deed.

         Defendants then sought leave to appeal in our Court. We ordered oral argument on

the application, focusing on “whether the covenant of title under MCL 565.151, which

states that the premises ‘are free from all incumbrances,’ includes a covenant that the

structure of the premises conforms to currently applicable building codes.” 3

                                II. STANDARD OF REVIEW

         We review de novo a trial court’s ruling on a motion for a directed verdict. 4 We

likewise “review de novo questions of statutory interpretation.” 5

                                       III. ANALYSIS

         The question in this case is whether a building code violation, not yet subject to any

enforcement action, is an encumbrance under MCL 565.151, breaching the warranty deed.

2
 Galvan v Poon, unpublished per curiam opinion of the Court of Appeals, issued
August 19, 2021 (Docket No. 352559).
3
    Galvan v Poon, 509 Mich 938, 938 (2022).
4
    Elezovic v Ford Motor Co, 472 Mich 408, 418; 697 NW2d 851 (2005).
5
    Ally Fin Inc v State Treasurer, 502 Mich 484, 491; 918 NW2d 662 (2018).

                                               4
Deeds transfer the ownership interests in real property. 6 MCL 565.151 governs the effect

of and covenants included in a warranty deed:

               That any conveyance of lands worded in substance as follows: “A.B.
       conveys and warrants to C.D. (here describe the premises) for the sum of
       (here insert the consideration),” the said conveyance being dated and duly
       signed, sealed and acknowledged by the grantor, shall be deemed and held to
       be a conveyance in fee simple to the grantee, his heirs and assigns, with
       covenant from the grantor for himself and his heirs and personal
       representatives, that he is lawfully seized of the premises, has good right to
       convey the same, and guarantees the quiet possession thereof; that the same
       are free from all incumbrances, and that he will warrant and defend the title
       to the same against all lawful claims.

We have held that, to be actionable, the breach of the covenant against encumbrances must

occur when it is made. 7

       The case turns upon the scope of the term “encumbrance.” When the statute was

first enacted in 1881, see 1881 PA 187, that term was defined in a leading legal dictionary

as “[a]ny right to, or interest in, land which may subsist in third persons, to the diminution

of the value of the estate of the tenant, but consistently with the passing of the fee.” 8 In

6
 See Gibson v Dymon, 281 Mich 137, 141; 274 NW 739 (1937); Cunningham, Stoebuck
& Whitman, The Law of Property (St. Paul: West Publishing Company, 1984), § 11.1,
p 711 (“In nearly all sales of real property, the deed is the instrument used to effect the
ultimate transfer of legal title.”).
7
  See Reed v Rustin, 375 Mich 531, 535; 134 NW2d 767 (1965) (“[A] covenant against
encumbrance is breached, when made, if at all . . . .”); Smith v Lloyd, 29 Mich 382, 385
(1874) (“[T]he covenant of seizin, and that against incumbrances, are broken, if ever
broken at all, at the moment when made . . . .”).
8
  Black, A Dictionary of Law (St. Paul: West Publishing Company, 1891), p 613. Lay
dictionaries offered a similar definition. See Webster’s New International Dictionary of
the English Language (1921) (“Law. A burden or charge upon property; a claim or lien
upon an estate, which may diminish its value; specif[ically], any interest or right in land

                                              5
other words, an encumbrance has traditionally related to rights to or interests in the land

itself rather than the condition of the property. Around the same time, we similarly stated:

       [A]nything is an encumbrance which constitutes a burden upon the title; a
       right of way, Clark v. Swift, [44 Mass 390 (1841),] a condition which may
       work a forfeiture of the estate, Jenks v. Ward, [45 Mass 404 (1842),] a right
       to take off timber, Cathcart v. Bowman, [5 Pa 317 (1847),] a right of dower,
       whether assigned or unassigned, Runnells v. Webber, 59 Me. 488 [1871]. In
       short, “every right to, or interest in the land, to the diminution of the value of
       the land, but consistent with the passage of the fee by the conveyance.”
       Prescott v. Trueman, 4 Mass., 627, 630 [1808].[9]

This description of encumbrances focused on ownership interests in or rights to real

property, not the material condition of the property itself. 10          We have repeatedly

emphasized that an encumbrance affects the rights to or interests in the property. 11

existing to the diminution of the value of the fee, but not preventing the passing of the fee
by conveyance.”).
9
  Post v Campau, 42 Mich 90, 94-95; 3 NW 272 (1879). Post preceded the enactment of
1881 PA 187 but reflected our prior caselaw holding that every contract conveying land
“impliedly engages not merely . . . to give a good title, but also to convey by a deed
containing the usual covenants,” which included the covenant against encumbrances.
Dwight v Cutler, 3 Mich 566, 577 (1855).
10
   Although we noted that encumbrances included “a condition” that could lead to
forfeiture, we were not referring to the material conditions of the land. The case we cited,
Jenks v Ward, 45 Mass at 413, involved a “condition” on the conveyance of land requiring
that the grantee pay the outstanding mortgage on the property. Because the failure to
perform the condition would forfeit the grantee’s ownership of the property, the court
determined it was an encumbrance. Id. at 413. The “condition” therefore related to the
rights to and interests in the land.
11
   See Darr v First Fed S & L Ass’n of Detroit, 426 Mich 11, 20; 393 NW2d 152 (1986)
(quoting the Post definition of encumbrances); Porter v Ridge, 310 Mich 425, 429; 17
NW2d 239 (1945) (same); Lavey v Graessle, 245 Mich 681, 683; 224 NW 436 (1929)
(same); Simons v Diamond Match Co, 159 Mich 241, 247; 123 NW 1132 (1909) (“An
incumbrance, within the meaning of covenants in deeds, has been broadly defined as ‘every

                                               6
         It is a well-established general rule that a governmental regulation, standing alone,

does not constitute an encumbrance. We have stated that “although restrictions on the use

of land fixed by covenants or agreements between owners constitute encumbrances,

restrictions imposed by legislative or municipal authority are not generally considered

such.” 12 This reflects black-letter law from across the country. 13 The reason for this rule

is that zoning and building codes generally “are concerned with the use of the land. . . .

There is a difference between economic lack of marketability, which concerns conditions

that affect the use of land, and title marketability, which relates to defects affecting legally

recognized rights and incidents of ownership.” 14 Clear title to a property can be held

right to, or interest in the land granted, to the diminution of the value of the land, but
consistent with the passing of the fee of it by the conveyance.’ ”) (citations omitted).
12
     Wolff v Steiner, 350 Mich 615, 625; 87 NW2d 85 (1957).
13
   See Dover Pool & Racquet Club, Inc v Brooking, 366 Mass 629, 631; 322 NE2d 168
(1975) (“In general building and zoning laws in existence at the time a land contract is
signed are not treated as encumbrances, and the purchaser has no recourse against the
vendor by virtue of restrictions imposed by such laws on the use of the property
purchased.”); Marathon Builders, Inc v Polinger, 263 Md 410, 418; 283 A2d 617 (1971)
(“The weight of authority indicates that zoning and other ordinances and statutes concerned
with the use of the land involved do not constitute an encumbrance on the land and their
lawful impact upon that use does not result in a breach of the covenant against
encumbrances.”); Garrison & Reitzel, Zoning Restrictions and Marketability of Title, 35
Real Est L J 257, 264 (2006) (“As a general proposition, the mere existence of a zoning
law, building restriction or other property control is not considered an encumbrance that
impairs marketability of title.”).
14
  Somerset Savings Bank v Chicago Title Ins Co, 420 Mass 422, 428; 649 NE2d 1123
(1995); Voorheesville Rod and Gun Club, Inc v EW Tompkins Co, Inc, 82 NY2d 564, 571;
626 NE2d 917 (1993) (“[M]arketablity of title is concerned with impairments on title to a
property, i.e., the right to unencumbered ownership and possession, not with legal public
regulation and the use of the property . . . .”).

                                               7
despite the fact that the land is subject to laws restricting its use. 15 Because such laws are

not a burden on the title affecting rights or interests in the property, they are not

encumbrances. 16 Moreover, some courts have observed that to hold that all governmental

regulations, standing alone, constitute encumbrances would force the seller to “become a

warrantor that the building complied in all respects with the building laws or ordinances in

force in the locality.” 17 This would impose an onerous burden, given the numerous

regulations applicable to land and buildings and the fact that owners usually contract out

the repair and modification work to which those regulations apply. 18

         In the present case, we are dealing with not simply a governmental regulation but

also the violation of that regulation. While courts are split on whether such violations

generally may constitute encumbrances, it appears that almost none hold that violations of

building codes (as opposed to other regulations, like zoning laws) that are not the subject

15
     Somerset, 420 Mass at 428.
16
  See Hoffer v Callister, 137 Idaho 291, 294; 47 P3d 1261 (2002) (observing that zoning
ordinances do not create “rights, interests, or hostile titles” relating to land); Marathon
Builders, 263 Md at 419 (“ ‘The [zoning] resolution in question simply regulates the use
of property in the districts affected. It does not discriminate between owners. It is
applicable to all alike. Therefore the general and well-nigh universal rule should be
applied, viz., that where a person agrees to purchase real estate, which, at the time, is
restricted by laws or ordinances, he will be deemed to have entered into the contract subject
to the same. He cannot therefore be heard to object to taking the title because of such
restrictions.’ ”) (alteration in original), quoting Lincoln Trust Co v Williams Bldg Corp,
229 NY 313, 318; 128 NE 209 (1920).
17
     Berger v Weinstein, 63 Pa Super 153, 158 (1916).
18
     See id.

                                              8
of an enforcement action are encumbrances. 19 In the courts that exclude violations of all

types of regulations from the concept of encumbrances, a primary rationale is that the

violation does not necessarily create “rights, interests, or hostile titles” relating to land. 20

Another rationale is the confusion that a contrary rule would cause, given that title searches

and physical examinations of the premises would not reveal the violation; the remedy

according to those courts is not to expand the category of encumbrances to include

regulatory violations but for the parties’ contract to provide for such violations. 21

19
  See Comment, Violations of Zoning Ordinances, The Covenant Against Encumbrances,
and Marketability of Title: How Purchasers Can Be Better Protected, 23 Touro L Rev 199,
205, 217 (2007) (noting the split and the exception for building code violations).
20
  See Hoffer, 137 Idaho at 294. The court left open the possibility, however, that egregious
or substantial violations, destroying the total value of the property, might constitute an
encumbrance. Id. at 295.
21
   See id. at 295 (“We decline to extend the traditional scope of a general warranty against
encumbrances in such a manner as to include zoning matters. To expand the concept of
encumbrance as urged by [the plaintiff] would create uncertainty and confusion in the law
of conveyancing and title insurance. Neither a title search nor a physical examination of
the premises would have disclosed the alleged violation. The better way to deal with
violations of zoning regulations is by contract provisions, which can give the purchaser full
protection in a situation like this one.”); Barnett v Decatur, 261 Ga 205, 205; 403 SE2d 46
(1991) (“We decline to extend the traditional scope of a general warranty of title in such a
manner as to include” zoning code violations.); Frimberger v Anzellotti, 25 Conn App 401,
409; 594 A2d 1029 (1991) (“We . . . hold that the concept of encumbrances cannot be
expanded to include latent conditions on property that are in violation of statutes or
government regulations. To do so would create uncertainty in the law of conveyances, title
searches and title insurance. The parties to a conveyance of real property can adequately
protect themselves from such conditions by including protective language in the contract
and by insisting on appropriate provisions in the deed.”); Monti v Tangora, 99 Ill App 3d
575, 582; 425 NE2d 597 (1981) (“The problem created by the existence of code violations
is not one to be resolved by the courts [by treating the violations as encumbrances], but is
one that can be handled quite easily by the draftsmen of contracts for sale and of deeds.
All that is required of the law on this point is that it be certain. Once certainty is achieved,
parties and their draftsmen may place rights and obligations where they will. It is the

                                               9
           Other courts generally hold that violations of certain other regulations and

ordinances can be encumbrances—but almost all of these courts have concluded that

violations of building or housing code regulations are not encumbrances. 22 This body of

caselaw treats zoning code violations as encumbrances because, in part, they are patent,

i.e., known or unhidden. 23     Similarly, zoning code violations have been considered

encumbrances because they pose the same problems as more traditional encumbrances,

i.e., they involve encroachments on the land or the removal of an entire structure to cure

the violation. 24

stability in real estate transactions that is of paramount importance here.”); Fahmie v
Wulster, 81 NJ 391, 397; 408 A2d 789 (1979) (“To expand the concept of encumbrance”
to include violations of laws or regulations “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.”); Voorheesville, 82 NY2d at
572-573 (“The solution . . . is not for the courts to expand the conditions which render title
unmarketable, thereby altering the concept of marketability of title, but for the parties to
real estate contracts to include specific provisions” in the contract); see also Zoning
Restrictions, 35 Real Estate L J at 275-278 (discussing this caselaw).
22
  See generally Zoning Restrictions, 35 Real Estate L J at 273 (“The ‘existing violation’
exception [to the rule that ordinances are not encumbrances] is subject to a qualification”
that generally excludes building and housing code violations.).
23
     Id.
24
   See Feit v Donahue, 826 P2d 407, 411 (Colo App, 1992) (noting that the “zoning
violation required major structural alterations or removal in order to comply with the
zoning law,” including either the destruction and rebuilding of part of a house or the
completion of an entirely new garage); FFG, Inc v Jones, 6 Hawaii App 35, 48-49; 708
P2d 836 (1985) (noting that the cases holding that a zoning code violation is an
encumbrance all involve encroachments or the removal of entire buildings); Moyer v
DeVincentis Constr Co, 107 Pa Super 588, 593; 164 A 111 (1933) (noting that the
purchaser of land involving an encroachment in violation of a zoning ordinance “is not in
any better position legally than if the house had encroached upon the street or upon the
premises of an owner other than the vendor”).

                                             10
           Building or housing code violations, by contrast, almost always involve obscure or

technical details pertaining to the condition of the buildings that would not be apparent to

the parties. 25 As one court observed, “to hold building code violations are encumbrances

would impose a heavy burden on intervening purchasers since violations of the technical

requirements of building codes are often difficult to ascertain once construction has been

completed.” 26 In light of this reasoning, courts routinely decline to treat building code

violations as encumbrances. 27 The rare exceptions involve violations that were already

subject to governmental enforcement actions when the deed was executed. 28

25
     Domer v Sleeper, 533 P2d 9, 13 (Alas, 1975).
26
     Id.
27
  See Feit, 826 P2d at 411 (“Notwithstanding that the authorities are somewhat divided on
the effect of zoning law violations, . . . they nearly uniformly hold that the sale of a
property with structures built in violation of a building code is not a breach of the covenant
against encumbrances.”); Stone v Sexsmith, 28 Wash 2d 947, 951; 184 P2d 567 (1947)
(“ ‘[A] claim for breach of covenant cannot be predicated on the condition of the premises
as to dilapidation or the existence of a nuisance or the necessity of repair or alternation to
conform to building laws.’ ”), quoting 21 CJS, Covenants, § 98; Gaier v Berkow, 90 NJ
Super 377, 379; 217 A2d 642 (1966) (finding no support for the proposition that violations
of building requirements could constitute an encumbrance); Berger, 63 Pa Super at 158
(noting that the court had not discovered any case holding that a violation of a building
code has “been held to be a fact affecting the title or in the class of encumbrances”); see
generally Violations of Zoning Ordinances, 23 Touro L Rev at 216 (“The majority of
jurisdictions have . . . held that violations of building codes do not constitute
encumbrances.”) (collecting cases); Zoning Restrictions, 35 Real Estate L J at 279 (noting
that courts automatically treat building code violations as latent defects and thus hold they
are not encumbrances); cf. McCrae v Giteles, 253 So 2d 260, 262 (Fla App, 1971) (“We
have concluded that a building code violation of which the vendor has notice is not an
encumbrance within the meaning of covenant against encumbrances.”).
28
  See Brunke v Pharo, 3 Wis 2d 628; 89 NW2d 221 (1958). Brunke’s limited holding was
that a violation of a building code “with respect to which the agency charged with
enforcement has begun to take official action is an incumbrance.” Id. at 631; see also

                                               11
         We agree with the general rule and hold that a violation of building codes, which

has not yet been subject to any official enforcement action, is not an encumbrance. 29 Such

a violation does not affect the rights to or interests in the property and it is hidden or at

least not readily known. It therefore lacks the defining characteristic of an encumbrance. 30

To hold otherwise would not only disregard the longstanding meaning of encumbrance, it

would also destabilize our system of conveying real property by inviting title disputes

based on violations of building codes that would not be discovered during a normal title

search or inspection of the property. Parties to land transfers are free to allocate the risk of

Ableman v Slader, 80 Ill App 2d 94, 98-99; 224 NE2d 569 (1967) (noting that “the
existence of a building code violation does not of itself constitute a cloud on title where the
real estate sale contract calls only for the passing of ‘good title,’ ” but that the pendency of
a lawsuit for those violations might). This caselaw has been distinguished when
enforcement actions have not begun. See Domer, 544 P2d at 12 (distinguishing Brunke on
the ground that the violation in Domer was not subject to enforcement action when the
deed was executed); Gaier, 90 NJ Super at 379 (citing Brunke but noting, “[n]or are we
confronted here with a situation where prosecution was imminent when the deed was
executed”). One other court found an encumbrance where there was a violation of state
law and building codes requiring water services to be connected to the property—a
seemingly obvious defect. First American Fed S & L Ass’n v Royall, 77 NC App 131, 135-
136; 334 SE2d 792 (1985). But the court did not explain its reasoning, and we do not
believe that First American justifies a departure from the predominant view that building
code violations are not encumbrances.
29
   Because the violation in this case was not subject to enforcement proceedings or related
litigation until after execution of the deed, we need not decide whether a violation subject
to such proceedings or litigation when the deed was executed would be an encumbrance.
30
     See Post, 42 Mich at 94-95.

                                              12
such violations by contract.       We decline to do so by expanding the concept of

encumbrance. 31

       In reaching a contrary conclusion, the Court of Appeals relied upon various out-of-

state cases holding that zoning code violations are encumbrances. 32 But as discussed, those

cases are distinguishable from the present case, which involves a building code violation.

Zoning violations generally are discoverable and can affect the property in a manner similar

to traditional encumbrances. The Court below also suggested that the mere threat of

litigation over the violation was enough to turn the violation into an encumbrance. This

reasoning sweeps too broadly. 33 We are aware of no case holding that the mere risk of

litigation concerning a matter that is not an encumbrance suffices to create an

encumbrance. 34 Similarly, the fact that future enforcement actions might, as in this case,

31
  While, as explained above, zoning codes are distinguishable from building codes, we are
not called upon here to decide whether violations of the former could be encumbrances,
and so we offer no opinion on the subject.
32
  See Oatis v Delcuze, 226 La 751; 77 So2d 28 (1954) (building residential apartments
violated a zoning ordinance restriction on family residences); Lohmeyer v Bower, 170 Kan
442; 227 P2d 102 (1951) (addressing location of a structure in violation of a zoning
ordinance); Moyer, 107 Pa Super 588 (involving a violation of a house setback ordinance).
The Court of Appeals also cited caselaw involving actual title disputes or encroachments
on the land. Praegner v Kinnebrew & Ratcliff, 156 La 132, 136; 100 So 247 (1924)
(dealing with an actual title dispute, which all parties in this case would acknowledge is an
encumbrance on title); Bethurem v Hammett, 736 P2d 1128 (Wy, 1987) (involving an
encroachment).
33
   See Zoning Restrictions, 35 Real Estate L J at 268 (“The ‘hazard of litigation’ rationale
is not, in itself, a sufficient basis for an ‘existing violation’ exception, since all manner of
issues relating to property can lead to litigation.”).
34
  The Court of Appeals cited Lohmeyer, 170 Kan at 448, as support for the proposition
that “the violation of the building code ordinance constituted an encumbrance on the title
as it immediately opened plaintiffs up to the risk of litigation and made their home

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lead to a lien is not enough to transform a bare violation into an encumbrance. As noted,

breach of the covenant occurs, if at all, when the covenant is made. 35

         Applied to the facts of this case, our holding requires reversal of the Court of

Appeals’ judgment. The violation at issue was of a building code regulating the building’s

firewall, and the City had taken no actions to enforce the code at the time the warranty deed

was executed. While the violation impaired the condition of the property, it was not an

encumbrance that affected the ownership interests in the land. Therefore, the building code

violations did not breach the warranty deed under MCL 565.151.

                                    IV. CONCLUSION

         For the reasons above, we hold that a building code violation, in existence at the

time a warranty deed is executed and not yet subject to any enforcement actions, does not

constitute an encumbrance under MCL 565.151. Accordingly, the Court of Appeals erred

unlivable and unmarketable.” Galvan, unpub op at 3 & n 4. Lohmeyer held that a zoning
code violation rendered title doubtful because it subjected the purchaser to litigation, and
thus the title was unmarketable. Lohmeyer, 170 Kan at 448-449. It did not hold, however,
that the mere threat of litigation was itself an encumbrance. It is true that the risk of
litigation can sometimes render a title unmarketable when the litigation “challeng[es] [the
purchaser’s] possession and interest” in the property. Bartos v Czerwinski, 323 Mich 87,
92; 34 NW2d 566 (1948). But the issue we face here is whether the violation was an
encumbrance under MCL 565.151, not whether the title was more broadly unmarketable.
The question of whether the risk of litigation could impair the marketability of title in some
way other than by creating an encumbrance is not before the Court. We acknowledge that
the Court of Appeals has held that a standard warranty deed under MCL 565.151 includes
a guarantee of marketable title. See Eastbrook Homes, Inc v Dep’t of Treasury, 296 Mich
App 336, 348; 820 NW2d 242 (2012). However, plaintiffs have not clearly raised or
developed the argument that their breach of warranty claim should proceed on this basis,
so we decline to address the issue.
35
     Reed, 375 Mich at 534.

                                             14
in reaching the contrary conclusion. We reverse that judgment and remand to the trial court

for reinstatement of its order granting defendants’ motion for a directed verdict with regard

to the claim at issue here.

                                                         David F. Viviano
                                                         Elizabeth T. Clement
                                                         Brian K. Zahra
                                                         Richard H. Bernstein
                                                         Megan K. Cavanagh
                                                         Elizabeth M. Welch
                                                         Kyra H. Bolden

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