VENDOR/PURCHASER; MERCHANTABLE TITLE; ENVIRONMENTAL CONTAMINATION: Contaminated condition of real estate does not represent a breach of warranty of merchantable title. HM Holdings Inc. v. Rankin, 70 F.3d 933 (7th Cir. 1995). Buyer defaulted on an installment contract. Owner instituted foreclosure proceedings. Buyer counterclaimed, arguing that since the land was contaminated, owner had breached the contract warranting merchantable title.

Held: Counterclaim dismissed. There is no implied warranty of habitability encompassed within the concept of merchantable title, except (in Indiana) in a vendor/builder relationship. The Seventh Circuit court pointed out that every court addressing this issue has refused to expand the merchantable/marketable title doctrine to make the presence of hazardous waste an encumbrance of title.

Comment: Let us assume for the moment that the environmental conditions in question would give rise to a government right to enter the property, clean it up, and assess a lien for the damages. These government rights certainly interfere with the clear title to the property. They might be analogous, for example, to implied easement, constructive trust or equitable lien rights that third parties might have in the property, arising from conduct of a landowner prior to transfer. Thus, there is some logic to the transferee's position.

Another way to look at the environmental problems, however, is that they are simply conditions on the property subject to government regulation, and that even if the government regulation eventually might lead to the imposition of easement rights or lien rights, the existence of the condition is not the same as the existence of the rights. Therefore, although the conditions might be objectionable, they are not "title defects." This view of the situation, of course, is strengthened by the fact that most environmental laws only create rights in the government where the landowner refuses the option to conduct the clean-up privately.

The buyer's sole source of authority was a student law review piece: "Toxic Clouds on Titles, 19 B.C. Envtl. Aff. L. Rev. 355 (1992) Fortunately for the stability of real estate law, not every bright idea that a student publishes changes the world.

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