"Sellers will often pay for a home warranty protection plan. These plans provide that if certain problems occur in the home, the insurance company (rather than the seller) will automatically cover them...The warranty plan requires the seller to sign a statement acknowledging that, as of the close of escrow, the property is in good condition with no defects. If there are known defects, the warranty plan will usually exclude them from coverage.
Hence, while the warranty plan is very useful for covering smaller problems that may later turn up (such as a leaking water heater or a broken furnace), it may provide little of no protection against more serious defects, such as a broken foundation or bad roof, particularly those disclosed or discovered prior to the close of sale." -From, "Tips & Traps When Buying A Condo, Co-Op, or Townhouse" By: Robert Irwin
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