Marketable Titles

In the real estate business, a marketable title is considered entirely free from defect, therefore deemed agreeable to be accepted by any potential buyer. Unlike a merchantable title, which is considered to be reasonably free of problems or defects, a marketable title is thought to be relatively perfect.

In most real estate transactions, there is an assumption of marketable title unless there is specific wording in the contract to indicate otherwise. Real estate contracts typically state that in the event the seller cannot produce a clear and marketable title, the buyer can back out of the deal and recapture any deposits they may have paid. As a seller does not have to deliver a clear and marketable title on the date of closing, the seller can essentially sell a home he or she does not properly own as long as they obtain the marketable title by the date of closing.

Many defects can affect real estate titles marketability. For instance, if there are any encumbrances on the property such as liens or unresolved mortgages. Issues arising from an easement agreement where the owner has previously agreed for another party to use the property can result in legal action when the easement holder sues to retain his or her rights of use. If the property has been unused for a length of time and has become possessed by squatters (persons who take over an apparent abandoned building or tract of land), a situation of adverse possession might occur where the squatters claim ownership due to abandonment.

Violations of zoning laws or any other type of violations that are found to be existing at the time of sale, such as servitudes or covenants. While servitudes would fall under the legal topic of easements, covenants are a question of promises made. Real covenants are promises that are written, which state that specific actions will or will not take place on the land. Many covenants are transferable, meaning that subsequent property owners may either benefit from the covenant or otherwise be burden with it. In certain situations a covenant can be broken by court action, but when simply breached can result in penalties and damages.

In some cases of real property that has been "gifted" to the owner there can be clauses contained in the gift contract that can essentially revert ownership back to the original owner. This is commonly when a piece of real estate is given to a family member for the purposes of living in, but not for resale. In any of these situations, it is essential to clear up any of these problems before the closing date. Title insurance is available for cases that become known after the date of closing for instances of fraud and unknown parties of interest.