In property law, the title refers to the bundle of rights and interests (either legal or equitable) that someone owns in a piece of land. When an owner desires to sell or otherwise assign the property, they must confirm that all the “sticks” in the bundle do not have any issues preventing the complete movement of ownership from one party to another. If they can do so, the holder has what is known in real estate as a “marketable title.”
A marketable title is a title that a court of equity considers so free from defect that it will lawfully force its acceptance by a buyer. The marketable title does not presume the complete absence of defect but rather a title that a careful, knowledgeable buyer would accept in the reasonable course of business. For real estate practitioners, the complete reference to title issues is found in the preprinted wording contained within an agreement or contract. If you cannot deliver a clear title or deed to the property, the forthcoming buyer should anticipate losing in a specific performance action.
Merchantable title and marketable title are interchangeable phrases.
In the absence of an agreement to the contrary, there is an implied undertaking in the agreement that the vendor (someone selling the property) has a marketable title. The contract typically provides that on the failure of a vendor to deliver good and marketable title, the vendee (buyer) may cancel the contract and recover any deposit.
All agreements for property sales carry an implied warranty that the title is marketable unless there is an express agreement to the opposite.
Are Clear Title and Marketable Title the Same Thing?
Another expression used during the sale and transfer of property is the presence or absence of “clear title .” While the two phrases may sound alike, they refer to two different things. The marketable title refers to the guarantee made by the seller that the property carries no substantial risk of litigation or encumbrances that would negatively affect the buyer.
The seller must make sure to clear any encumbrances and other legal issues before closing. If they fail to do so before or within a reasonable time after closing, they have breached the implied warranty of marketability, and the buyer can cancel the sale.
In distinction, a clear title refers only to defects in the deed after the sale is completed. After both buyer and seller sign a contract for land sale, the contract merges with the deed. As a result, only warranties and defects of the deed itself are actionable. Once the contract is finished, a buyer may no longer claim an unmarketable title to avoid the sale. Their only option is to go after the seller due to a lack of a clear title.
What Overpowers Title Marketability?
Several issues can make a title unmarketable. They include:
- Outstanding liens or mortgages
- Restrictive covenants (a contract that requires the buyer to either take or refrain from a specific action)
- Outstanding future interests held by others (also called a “reverter”)
- Easements (non-possessory right to use or enter onto the property)
- Variations or discrepancies in the name of either grantor or grantee
- Chain of title problems
- Adverse possession claims
- Structural encroachments
- Outstanding covenant or equitable servitude infractions
- Zoning transgressions
It is essential to mention that zoning regulations in and of themselves do not defeat marketability. After all, nearly every piece of sellable property has some zoning limitations. Marketability problems only emerge if there are any current zoning violations at the time of sale.
Insurable v. Marketable Title in Real Estate Transaction
A marketable title is a title that is free and clear of any defects or clouds that a sensible buyer would find objectionable. This is a reasonably strict standard, but buyers should also know that a marketable title does not have to be flawless. Real estate transactions are managed by human beings who occasionally make errors, and the documents in any given title are likely to contain some minor mistake. These can be minor typographical mistakes, superficial form flaws, and other variations that do not raise questions about the parties’ intent to a transaction or the recorded instrument in question.
So, to put it simply, a seller would be able to convey marketable title if an examination shows no doubt about their ownership of the property and that there are no clouds or encumbrances that would not be cleared at the closing of the transaction.
An insurable title calls for a relatively less rigid standard when compared to a marketable title. An insurable title may include some cloud or defect that would otherwise make it unmarketable. Still, a respected title insurer has been informed of the defect and agrees to offer title insurance that affirmatively covers the buyer or does not accept the defect. In other words, there can be a known issue concerning the title. Still, the title insurer will shield the buyer from damages or losses which may result from that situation, up to the limits of the title insurance policy.
Common flaws in insurable titles include uncanceled previous owner mortgages, uncertain easements for access, and unresolved judgment liens against previous owners.
Knowing the difference between marketable and insurable titles will help buyers understand purchasing. Buying property with an insurable title is not necessarily a bad thing, but it is important to know the implications and potential problems with buying property under this standard.
An insurable title might not be a worse quality title, but it may relieve the seller of an obligation to clean up a problem with the title before closing if one is encountered.
How Can I Check if a Property Has Marketable Title?
A buyer needs to take great cautiousness in ensuring that a piece of land has a marketable title before presenting an offer for purchase. There are several ways to do this. The most evident method is to ask the seller, but not everyone will be open with title issues.
You can also request to view the seller’s title policy. However, the seller’s title will only show encumbrances and hang-ups that existed when they bought the property and no issues after that purchase.
What If I Run Into a Title Marketability Problem?
If a title search yields marketability issues, don’t fret. Most properties, predominantly residential properties, will have a mortgage attached. In addition, utility or municipal easements and restrictive covenants such as HOA guidelines are relatively expected in modern real estate transactions.
The real key is to make sure you are conscious of all potential marketability issues and determine which encumbrances you are willing to accept before signing any contracts. It is up to the buyer to consider whether or not these problems seriously impact the enjoyment of the land or pose a significant legal risk to the potential owner.
Do I Need an Attorney for Title Issues?
Real estate transactions happen every day, but they can still cause substantial negative financial and legal consequences if something were to go wrong.
If you are looking to buy or sell property, seeking the help of an experienced real estate attorney is a meaningful way to protect your interests and your rights.
