This аppeal presents the novel issue of whether failure to name the proper parties in a proceeding to foreclose equity of redemption renders title to that property defective and constitutes a breach of special warranty or breach of the covenant against encumbrances when the property is subsequently conveyed.
Appellant in this case, Robert M. Dillow (Dillow), is a builder of single-family homes in Cecil County, Maryland. In the summer of 1988, he entered into a contract of sale with appellees, James S. Magraw and Deborah L. Magraw (the Magraws), for the purchase of four adjoining, unimproved lots of property located in Cecil County. The property was conveyed by two separate deeds, dated August 2, 1988 and November 7, 1988. Both deeds contained 1) a special warranty; 2) a covenant by the Magraws that “they have done not or suffered to be done any act, matter or thing whatsoever, to encumber the propеrty hereby conveyed”; and 3) a covenant that “they will execute such further assurances of the same as may be requisite.”
Dillow alleges that the foreclosure proceeding initiated by the Magraws with respect to the one-sixth portion of the property was not performed in compliance with the Tax-Property Article because it failed to name as defendants the heirs of Helen Rowland Squire. Dillow contends a search of the Orphan’s Court records for Cecil County would have revealed that Ms. Squire left six heirs who, by virtue of Ms. Squire’s intestacy death, were the record title holders of the property at the time of the tax sale.
In December 1991, Dillow filed a complaint in the Circuit Court for Cecil County against the Magraws as well as against the companies that performed a title search of the subject property, Industrial Valley Title Insurance Company and Fidelity Title Company, Inc. Industrial Valley and Fidelity Title were subsequently dismissed by Dillow
Dillow presents three issues for our review, which we have recast as follows:
I. Did the Magraws’ failure to designate Squire’s heirs as defendants in their Complaint for Foreclosure of Equity of Redemption violate former section 103 of Article 81 of the Annotated Code of Maryland?
II. Does the failure to designate the proper defendants in a proceeding to foreclose equity of redemption render title*355 in the subject property defective and constitute a breach of the special warranty contained in the deed?
III. Does the failure to designate the proper defendants in a proceeding to foreclose equity of redemption constitute a breach of the covenant against encumbrances?
IV. Did the circuit court err in dismissing Dillow’s claims for negligent redemption and breach of the warranty of merchantable title?
In answering these questions, we are mindful that the posture of this case as presented to us requires only that we review the propriety of the trial court’s dismissal. We are not called upon to decide any of the numerous factual issues that appear to have been generated in this case. We answer “yes” to questions one and three, and “no” to questions two and four. Accordingly, we affirm the judgment of the trial court as to Count I (breach of special warranty), Count V (breach of express and implied covenant of merchantable title), and Count VII (negligence). We reverse the judgment of the trial court as to Count IV (breach of covenant against encumbrances).
I.
We turn first to Dillow’s allegation that the Foreclosure Complaint filed by the Magraws failed to name as defendants the heirs of Helen Rowland Squire. Dillow claims that these unidentified heirs owned an one-sixth interest in the subject property at the time the complaint was filed. He alleges that a title defect was created as a result of this error by the Magraws in the foreclosure.
At the time the Magraws filed their complaint to foreclose in October, 1983, Article 81 of the Annotated Code governed the procedure to be followed in tax sales.
The defendants in any such proceeding shall be the following:
(a) The owner of the property as disclosed by a search of the land records of the county, of the records of the register of wills of the county, and of the records of any court of law or equity of the county.
# ❖
(d) It shall not be necessary to name as defendant any other person having or claiming to have any right, title, interest, claim, lien or equity of redemption in and to the property sold by the collector. Any or all such persons may be included as defendants by the designation “all persons having or claiming to have any interest in property..... (giving a description of the property in substantially the same form as the description which appears on the Collector’s tax bill).” Any or all such persons may be designated throughout the proceeding by the above designation and the cause may proceed against them by publication under order of court as hereinafter provided.
(emphasis added).
The Magraws argue that they complied with section 108 by including in their Foreclosure Complaint the catch-all statutory language, “all persons having or claiming to have any interest in the property.” The caption of the Foreclosure Complaint was as follows:
JAMES S. MAGRAW and DEBORAH L. MAGRAW Plaintiffs
vs.
(emphasis added). The Magraws contend that this was all that was rеquired. They claim that they could not have named the heirs of Ms. Squire as defendant “owners” because Ms. Squire died intestate and her property was, therefore, never bequeathed or devised to any of her heirs. They conclude that, as a result, the heirs never acquired actual ownership or record title in the property.
We note first that at the time of Ms. Squire’s death in 1947, the applicable testamentary law held that title to a deсedent’s real property devolved directly to her heirs at law upon her death, without the necessity of administration by an administrator or personal representative. Heill v. Staniewski,
II.
We next address the effect of the Magraws’ failure to name the heirs of Ms. Squires as defendants and the implications, if any, on Dillow’s rights in the present action.
A. Status of Title as a Result of Failure to Designate Proper Defendants in Complaint to Foreclose Equity of Redemption
Section 112 of Article 81
The conclusiveness of the tax sale purchaser’s title is, however, subject to two exceptions set forth in section 113 of Article 81. A final decree issued by a circuit court may be vacated or reopened on the grounds of either 1) lack of jurisdiction or 2) fraud in the conduct of the proceedings to foreclose. Art. 81, § 113. A lack of jurisdiction may exist where the property being foreclosed is not sufficiently described in the proceedings such that the property owners are not notified of their rights to foreclose, Thomas v. Hardisty,
In order to establish fraud as the basis for setting aside a final decree, the Court of Appeals has held that proof of “constructive” fraud is sufficient. Jannenga v. Johnson,
In the case sub judice, the dеcree issued by the circuit court in August, 1984, is vulnerable on grounds of lack of jurisdiction but not fraud in the conduct of the foreclosure proceedings. According to the allegations in Dillow’s First Amended Complaint, a proper search of the land records would have disclosed some or all of Ms. Squire’s six heirs and their ownership interest in the subject property. Assuming this is true, these persons were necessary defendants in the Foreclosure Complaint filed by the Magraws in October, 1983. Because the Magraws failed to name Ms. Squire’s heirs in the proceeding, the circuit court lacked jurisdiction to render a decree foreclosing their right to redeem the property. We hold that the allegations in Dillow’s First Amended Complaint are sufficient for present purposes to at least raise the issue of lack of jurisdiction and defeat the presumption that a final decree is, indeed, final and conclusive. As to the second ground for challenging the finality of the decree—constructive fraud оn the part of the Magraws—we need not address this issue since any such claim would be barred under the one-year statute of limitations set forth in then applicable section 113 of Article 81.
In so holding, we recognize that a decree foreclosing the right of redemption cannot be set aside except by a petition filed by the original owners whose rights were foreclosed and that there is no evidence in the record that the
[I]t would seem to be an unnecessary refinement to make a distinction between an application to reopen a decree because of lack of jurisdiction to enter it and a collateral attack intended to show that the decree is a nullity for precisely that same reason.
Id. at 537,
While a considerable period has elapsed since the tax sale was made and ratified, and while those adversely affected have taken no formal action to have the sale annulled, the present purchaser could have no assurance that they will not contest the title____ It would not be just to compel the objecting purchaser to accept a title thus exposed to probable litigation. As it stands at present it is not the good and marketable title which he has a right to demand.
Id. (citations omitted).
In the present case, assuming the truth of all facts alleged by Dillow, we hold that title to the subject property was rendered defective and unmarketable as a direct result of the Magraws’ failure to name the proper parties as defendants in their Foreclosure Complaint. If the Magraws had complied with Article 81 and named Squire’s heirs as defendants, we must assume that the heirs would have exercised their right to
The question remains, however, whether the failure to designate Squire’s heirs as defendants and the resulting defect in title constitutes a breach of special warranty.
B. Breach of Special Warranty
The effect of the Magraws’ failure to name Ms. Squire’s heirs as defendants is, of course, that the hеirs were not granted the opportunity to pay the back taxes and redeem the property. We cannot speculate whether or not the heirs were financially able, or otherwise inclined, to redeem the property, but it is clear that were they granted the opportunity they would presently have an action against Dillow in which they could claim superior or paramount title to the property. We hold that the special warranty in the deeds would not protect Dillow from such a claim.
The legislature has codified the scope and effect of a special warranty in section 2-106 of the Real Property Article:
A covenant by a grantor in a deed, ‘that he will warrant specially the property hereby granted,’ has the same effect as if the grantor had covenanted that he will warrant forever and defend the property to the grantee against any lawful claim and demand of the grantor and every person claiming or to claim by, through, or under him.
Md.Code Ann., Real Prop., § 2-106.
The Magraws argue that a grantor does not warrant in a special warranty that he is the true owner of the property, or that he will protect the grantee against all claims of superior or paramount title. They contend, therefore, that any poten
First, a special warranty does not protect the grantee from claims of superior or paramount title. A covenant of special warranty, in contrast to a covеnant of general warranty, is limited as to the persons or claims to which it operates. It protects the covenantee against claims by, through or under the grantor, but does not warrant title “against a claim under a title against, or superior to, his grantor.” 20 Am.Jur.2d, Covenants, Conditions, and Restrictions, § 53 at pp. 624-25 (1965). See also, Central Life Assur. Soc. v. Impelmans,
“[S]pecial warranties [are] distinct covenants that [the grantor is] not to be answerable for any losses which might occur from the assertion of a title superior to his own; that if he is required to protect [the grantee] from [claims of superior title], he is in effect made to give [the grantee] all the benefit which could be derived from a general warranty....”
Here, Dillow seeks protection against the potential claims of Ms. Squire’s heirs, who he alleges have an outstanding and superior ownership interest in the subject property by virtue of the Magraws’ failure to properly foreclose their rights of redemption. We hold that while a covenant of general warranty might extend to such claims, the special warranty contained in the two deeds does not. The mere
The defect in the foreclosure proceedings would also not be covered under the special warranty for the simple reason that the Magraws did nothing during their period of “ownership” to impair title; stated differently, title to the property was not vested in them at the time the alleged “defect” arose. The Court of Appeals in Kendall v. Rogers,
Lastly, Dillow’s claim is not covered under the special warranty because a claim attacking the validity of
We hold, therefore, that as a matter of law the failure by a purchaser of property at tax sale to name the proper defendants in a complaint to foreclose equity of redemption does not constitute a breach of special warranty when the tax sale purchaser subsequently conveys that property by deed.
III.
We next address whether the defect in title that exists as a result of the Magraws’ failure to name the heirs as defendants (see Part II.A.) would constitute a breach of the covenant against encumbrances. The lower court summarily dismissed this count of Dillow’s complaint on the basis that there could not be a breach of the covenant against encumbrances because there was no breach of special warranty.
The legislature has codified the scope and effect of a •covenant against encumbrances. Section 2-110 of the Real Property Article provides:
A covenant by the grantor in a deed, “that he has done no act to encumber the land,” has the same effect as if he had covenanted that he had not done, executed, or knowingly suffered any act or deed whereby the land granted, or intended to be, or any part of it, are or will be charged, affected, or encumbered in title, estate, or otherwise.
Contrary to the lower court’s ruling, the scope of this covenant is considerably broader than a special warranty. The Court of Appeals has stated:
The object of the stipulation against encumbrances [is] to assure and protect the vendee, and tо relieve him of all danger that could result from the possible existence of incumbrances, whereby his estate might be lessened in value, and he be disturbed in the peaceable enjoyment thereof.
Bryant v. Wilson,
It thus appears that the covenant against encumbrances protects the covenantee, its successors and assigns, against rights or interests in the property conveyed which subsist in third persons and diminish the value of the estate even though they are consistent with the passage of the fee in the estate.
(emphasis in original). See also, Levine v. Hull,
We have found no Maryland cases which address the scope of a covenant against encumbrances in the context of a faulty tax sale proceeding. Indeed, very few decisions in Maryland have even discussed the covenant against encumbrances.
In Levine, the purchasers of five lots of land brought suit for damages against the sellers of the property for breach of special warranty and breach of covenant against encumbrances.
In Tri-State Properties, Inc. v. Middleman,
Decisions in other states demonstrate that a variety of “rights” subsisting in third parties may constitute an encumbrance, including an easement granted over the property by the sellers to the owners of abutting property prior to conveyance to the purchaser, Rhodes v. Astro-Pac, Inc., 41
Our review of these cases, both in Maryland and in other states, convinces us that the unclaimed right of redemption which presently exists in the heirs of Ms. Squire constitutes an encumbrance on the subject property. While the Maryland courts have not, until now, addressed this issue, we believe that this right of redemption is of kindred spirit with the cases cited above. First, the right of redemption held by each heir is a “right[ ] or interest[ ] in the property conveyed which subsists] in [a] third person[.]” Marathon Builders,
The Magraws covenanted “that they have not done or suffered to be done any act, matter of thing whatsoever, to encumber the property hereby conveyed.” As we noted in section II.B. supra, a covenant of special warranty is limited to acts “impairing the title during the holding of the property by the grantor,” Kendall,
A covenant against encumbrances is a personal one, and does not run with the land. Levine,
We note that thеre is no indication in the First Amended Complaint as to whether the unnamed heirs of Ms. Squire have yet asserted their still existing right of redemption in any way or in any form. Some courts in the country have held that if the grantee has not been pressured by the “owner” of the encumbrance or has not attempted to cure, then he is entitled to only nominal damages, even if he has already suffered actual consequential damages as a result of the encumbrance. See generally, Natelson, Modem Law of Deeds
IV.
Dillow argues that the lower court erred in dismissing Count V (breach of express and implied covenant of merchantable title) and Count VII (negligent redemption) of the First Amended Complaint. Again, he contends that the court dismissed these counts without addressing them individually and merely on the basis that there was no breach of special warranty. We hold that the lower properly dismissed both Count V and Count VII.
Count V alleges “[t]hat by their execution of the deeds of August 2, 1988 and November 7, 1988 [the] Magraw[s] did both expressly and implicitly represent and covenant that they had good and merchantable title to the subject property.” Our review of the two deeds indicates that neither deed expressly warrants that title to the property will be good and merchantable as alleged by Dillow. Therefore, while title was clearly defective and unmarketable (See Part H.A.), Dillow’s claim must fail. We note that any similar covenant or warranty in the contract of sale would have excused Dillow’s performance or would have entitled him to rescind the contract. However, once the contract is executed and thе deed is accepted, under the merger doctrine there is a prima facie presumption that the rights of the parties are governed entirely by the deed. Heckrotte v. Riddle,
Count VÍI alleges what essentially amounts to a claim for negligence on the part of the Magraws in the foreclosure proceedings. Dillow himself characterizes this claim as “somewhat unusual,” yet contends that the lower court failed to even address the merits of the claim. There is no cause of action recognized in Maryland for negligent foreclosure of redemption rights, and we decline to create one.
JUDGMENT REVERSED IN PART; CASE REMANDED FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION; COSTS TO BE DIVIDED EQUALLY BETWEEN THE PARTIES.
Notes
. As will be discussed, the implication of this alleged failure on the part of the Magraws is that the heirs were not provided аn opportunity to pay the back taxes and redeem the property.
. There is no evidence in the record as to nature of, or the circumstances surrounding, this dismissal.
. Dillow also filed a Complaint to Quiet Title in the property in the Circuit Court for Cecil County. According to Dillow’s First Amended Complaint, this Complaint to Quiet Title is captioned “Robert M. Dillow, et al. v. Mary R.H. Carter et al.,” case no. 90187E. Dillow incorporated this Complaint in his First Amended Complaint by reference.
. Both parties in this appeal have incorrectly cited section 14-836 of the Tax-Property Article as the applicable provision governing this case. Though this section was derived from former Article 81, section 103, it significantly amended section 103 in one respect. Section 14—836(b)(i)
. The Magraws argue further that neither Ms. Squire nor any of her heirs ever exhibited any indicia of ownership such as actual or constructive possession and that any interest they may have had was extinguished by adverse possession principles. We find this argument without merit.
. Former section 105 of Article 81, which was applicable at the time of the foreclosure, required that every bill of complaint to foreclose the right of redemption filed against an unknown owner “shall have attached thereto an affidavit by the person making the search that the owner or owners of the property or a part thereof are unknown, although a complete search of the records as аforesaid for a period of at least forty years immediately prior to the institution of the suit has been made.” Section 14-838 of the Tax-Property Article, which is currently in effect, is essentially the same as former section 105, though it also provides that the affiant must also state that the search was “performed in accordance with generally accepted standards of title examination.”
The "Affidavit of Search” filed by the Magraws asserted that "[they] did make a search of all Orphans’ Court, Equity, Land Records, Judgment Records, etc., in order to ascertain whether or not there were any other owners, or owner to said property.”
. The law changed in 1970 with the legislature’s rewriting of the testamentary laws. Since 1970, all real and personal property of a decedent passes directly to the personal representative who holds legal title for administration and distribution purposes. Md.Code Arm., Est. & Trusts § 1-301. The date of death of the decedent determines the applicablе law. Heill,
. While we cannot decide the factual issue that has been raised by the parties’ contradictory contentions concerning the accuracy of the title search that was performed, we do note that the "being” clause in the two deeds does indicate that the grantor of the property to the Magraws was the Treasurer, Norman Hasson, by virtue of the tax sale. Certainly, Mr. Hasson’s name would appear in the grantee index just as any other party who had an interest in the property. See, Arnold, v. Carafides,
. The Court of Appeals has recently addressed “the serious question of [the] steps [that] must be taken by the tax sale purchaser to attempt to notify the property owner of the impending foreclosure of the right to redeem.” St. George Antiochian Orthodox Christian Church v. Aggarwal,
The United States Supreme Court has also articulated the importance of apprising interested parties of the pendency of a foreclosure action. See Mennonite Bd. of Missions v. Adams,
. Article 81, § 112 was the statute in effect in August 1984, when the final decree was issued by the Circuit Court for Cecil County.
. Section 113 of Article 81 provided that "no reopening of any final decree on the ground of constructive fraud in the conduct of the proceedings to foreclose shall be entertained unless the application therefor with regard to the decrees heretofore rendered is made ... within one year from the date of the final decree.” Section 113 did not provide any similar time period for when lack of jurisdiction is alleged in a petition to vacate a final decree.
. Thomas filed a bill to quiet title in property against Hardisty who had purchased the property at tax sale. Thomas,
The Court recognized that Thomas’ bill to quiet title was not a direct suit to vacate the decree (though Thomas was a party who could do so since he was an original owner of the property) but rather a collateral attack. The Court noted that while it was treating the case before it as if it were in form and substance a proceeding directly seeking to reopen a decree, Thomas’s bill to quiet title had substantially the same effect.
. Both deeds contained the following provision:
And the said parties of the first part hereby covenant that they have not done or suffered to be done any act, matter or thing whatsoever, to encumber the property hereby conveyed; that they will warrant specially the propеrty hereby granted; and that they will execute such further assurances of the same as may be requisite.
. The money value of such a lien is the amount required to effect a redemption of the property. 2 Patton on Land Titles, § 586 at p. 514 (2d ed. 1957).
. The Magraws also contend that Dillow has failed, as a matter of law, to allege any breach of the covenant of special warranty, since there is no allegation in the First Amended Complaint that Dillow has been evicted from the property. It is generally recognized that an eviction, actual or constructive, is necessary in order to establish a breach of a covenant of warranty. Boulden v. Wood,
. In fact, the trial court dismissed all of Dillow’s counts stating that "they came down to that [special] warranty. If it’s not a violation of special warranty, which I find is it [sic] not, I think your case falls short.”
. A covenant against encumbrances is not a covenant running with the land but is rather in the nature of a personal covenant. Levine,
. We note that actual or constructive knowledge by Dillow of the existence of the encumbrance will not defeat his claim for breach of the covenant. The late Judge Eli Frank, who wrote a book on Maryland law regarding covenants against encumbrances, has stated:
Even though the grantee has knowledge of the existence of encumbrances at the time of delivery of the deed to him containing a cоvenant against encumbrances, he is still entitled to the full benefit of the covenant. He is not bound to insist upon the removal of the encumbrances prior to the acceptance of the title, even though the contract of sale bound the vendor to convey a title, free of encumbrances. He may prefer to accept the encumbered title and rely on his action in personam against the grantor.
Eli Frank, Title to Real and Leasehold Estates and Liens, at p. 98 (1912) (citing Bryant v. Wilson,
. We also observe that it is somewhat limited as compared with the "general covenant against encumbrances” embodied in § 2-111 of the Real Property Article which states:
A covenant by the grantor in a deed, ‘that the land is free and clear of all encumbrances' has the same effect as if he covenanted that neither he nor his predecessors in his chain of title had done, executed, or knowingly suffered any act or deed whereby the land granted, or intended to be granted, or any part of it, are or will be charged, affected, or encumbered in title, estate, or otherwise.
Md.Code Ann., Real Prop. § 2-111.