All land sale contracts have an implied warranty of marketability which means that the buyer is purchasing the property assuming that he or she will own the property free and clear, without the fear of future litigation . In general terms, it must be free from what are called encumbrances. In other words, if the property has liens, clouds of titles (unclear title), title defects, or other risks of litigation attached it, then the property is not marketable. Having a house that has marketable title gives both buyers and sellers the peace of mind that property issues, and potential legal trouble, will not come up later after the purchase or sale.
The differences between marketable title and clear title is that marketable title only warrants the contract promising the buyer that the property is free from all encumbrances while clear title deals with the title on the deed.
Marketable Title: Is a implied warranty in the land sale contract that says the the title to property is not subject to a claim or defect that would present a substantial probability of litigation and buyer is receiving property free from reasonable doubt. Seller is also promising there is no encumbrances on property. Encumbrances include mortgages, tax liens, judgment liens, zoning violations, use restrictions and easements. The seller has a duty to clear all of these before the closing date of the contract and if seller fails to do so within reasonable time after closing, seller will be in breach.
Clear Title: Once the contract is performed and buyer gets possession of the property at closing date, the contract merges with the deed and the warranties of the deed controls. Once the contract is extinguished, buyer cannot claim the title is unmarketable and must go after the seller for any defects in the deed. Buyer can claim that the deed does not have clear title and another 3rd party is claiming rights to the property.
If you are a buyer and are submitting a offer to purchase a property, it is your duty to investigate whether the title is marketable. Here are some ways you can learn if the property has marketable title.
Set Conditions on Offer: You may make the offer contingent upon your acceptance of the status of the property's title. This way if the title status is not marketable at closing you may back out of the deal without breaching the contract
Ask Seller: You may also ask the seller about any encumbrances on the title and seller must disclose this fact if he or she knew of it.
Look at Seller's Title Policy: You may also request to see the seller's title policy, but the title policy would only reveal any encumbrances that were on property at the time seller purchased property nothing after that
Title searches : Record searches are the best way to make sure a piece of real property has marketable title or uncover any encumbrances. In this process, an experienced title searcher will examine the public records in the city where the real property is located. This person will examine the grantor and grantee indexes for all recorded documents in the land registry concerning a particular piece of property. This search will produce a map of the chain of title.
A chain of title is what is produced by a title search. The chain of title lists all of the legally recognized conveyances of the property and is evidence that a piece of property has validly passed down thorough the years from one owner to the next without any problems. The title search will also determine if there are any encumbrances on the property, such as mortgages or liens.
If the title search turns up nothing other than a valid chain of title, and if there are no other known encumbrances on the property, then the title is "good and marketable." Usually an attorney or title searcher does a record search on the property few days before the closing date, at which various inspections and financing issues are usually cured. However, waiting couple days before closing could be costly since if an unwanted encumbrance comes up there will be not enough time to resolve the issue.
Therefore, it would be a good idea to condition the purchase of the property and sale contract on a satisfactory title status.
As a title search of most properties will reveal, almost no property has marketable title. Title searches usually turn up encumbrances on properties such as mortgages, real estate taxes, easements for sidewalks and other municipal improvements, federal taxes, government claims, legal judgments, foreclosures, condemnations, covenants, and private easements. When you do a title search, you are not usually looking for marketable title, but rather you are looking to determine what encumbrances are on the property and if they will pose any serious legal threats to your enjoyment of the property.
A real estate attorney should be able to help you out on your marketable title issue. Property law is a confusing area of the law, and one should never go it alone.
Last Modified: 08-20-2015 11:02 AM PDTLaw Library Disclaimer
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