In property law, title refers to the bundle of rights and interests (either legal or equitable) that someone owns in a piece of property. When an owner seeks to sell or otherwise transfer the property, they must ensure that all the “sticks” in the bundle do not have any issues that could prevent the complete movement of ownership from one party to another. If they can do so then the holder has what is known in real estate as “marketable title.”
All contracts for property sales carry an implied warranty that title is marketable, unless there is an express agreement to the contrary. This does not mean that the property is absolutely free of all defects. Instead, marketability rests on the premise that an educated buyer would accept when acting in a reasonable course of business.
Are Clear Title and Marketable Title the Same Thing?
Another phrase that is used during the sale and transfer of property is the presence or absence of “clear title”. While the two terms may sound similar, they actually refer to two different things. 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.
It is the seller’s duty to make sure to clear any encumbrances and other legal issues before closing. If they fail to do so before closing or within a reasonable amount of time after closing, they have breached the implied warranty of marketability and the buyer can void the sale.
In contrast, clear title refers only to defects in the deed after the sale is completed. After both buyer and seller sign a contract for the sale of land, the contract merges with the deed. As a result, only warranties and defects of the deed itself are actionable. Once the contract is completed, a buyer may no longer claim an unmarketable title to avoid the sale. Their only option is to go after the seller due to lack of clear title.
What Defeats Title Marketability?
There are a number of issues that can make a title unmarketable. They include:
- Outstanding liens or mortgages
- Restrictive covenants (agreement that requires the buyer to either take or abstain from a specific action)
- Outstanding future interests held by others (also called a “reverter”)
- Easements (non-possessory right to use and/or enter onto property)
- Variations or discrepancies in name of either grantor or grantee
- Chain of title issues
- Adverse possession claims
- Structural encroachments
- Outstanding covenant or equitable servitude violations
- Zoning violations
It is important to note that zoning restrictions in and of themselves do not defeat marketability. After all, nearly every piece of sellable land has some zoning limitations. Marketability issues only arise if there are any current zoning violations at time of sale.
How Can I Check if a Property Has Marketable Title?
A buyer needs to take great care in making sure that a piece of land has marketable title before submitting an offer for purchase. There are several ways to do this. The most obvious method is to ask the seller, but not everyone will be forthcoming with title issues.
You can also request to view the seller’s title policy. However, the seller’s title will only show encumbrances and other hang-ups that existed at the time they bought the property, and not any issues that happened after that purchase.
A buyer can also head off title issues by adding a condition to their offer. If title is not marketable at closing, the buyer can safely back out of the contract. But by far the most well-known method is a title search. The buyer hires a professional to research property records and construct a chain of title to uncover any encumbrances or other issues.
What If I Run Into a Title Marketability Issue?
If a title search yields marketability problems, don’t panic. Most properties, especially residential properties, will have a mortgage attached. In addition, utility or municipal easements and restrictive covenants such as HOA guidelines are fairly common in modern real estate transactions. You may decide that you are willing to accept these.
On the other hand, you may decide that the sale is not worth the trouble if you run into unpaid property taxes, judgments, or liens. The real key is to make sure you are aware of all possible marketability problems and decide on which encumbrances you are willing to accept before signing any contracts. It is up to the buyer to judge whether or not these issues seriously affect 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 huge negative financial and legal consequences if something goes wrong.
If you are looking to buy or sell property, seeking the help of an experienced real estate attorney is an important way to protect your interests and your rights.