It applies to sellers of real estate, if they fraudulently induce a buyer to purchase (typically a flipper who doesn't disclose material defects that they discover, but don't repair)

By color of title whereby you have met the guidelines in your state of a transfer document which purports to pass title in good faith but the interest is defective, or2.

Learning more about the properties physical condition, title defects, familiarizing yourself with true building expenses are a few examples of items that might change your perception of value during a diligence period but an appraisal report finding should be low on the list.

@Shane Alexander even if selling as-is, seller and listing agent are required to disclose any known material defects, at least in the states where I have purchased property.

The good news is that bad credit is not a character defect or unfixable.

It might be defective, it might not. 

I'm suspecting that what @Peter Walther: said "That's why I would expect if the agent knew about Bob's interest, there's an exception in the policy." is likely what occurred.What makes it even more intriguing is that the wholesaler involved, filled out the Probate paperwork for the heir using intentionally defective information.

Always get an inspection :-)Rather miss out on a deal than get stuck with some major defects that can be missed by the naked eye. 

If the buyer insists upon a warranty deed, give a special warranty deed that only declares that you did nothing to cloud title while you owned the property, but does not insure against any previously undiscovered title defects.

The manufacturer warranty is good enough for us, as well as the store return policy regarding defective goods.