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March 26, 2019

Marketable Title

Word of the day

Marketable Title

Good or clear salable title reasonably free from risk of litigation over possible de¬fects; also referred to as merchantable title. A marketable title is one that (1) is free from undisclosed encumbrances; (2) discloses no serious defects and does not depend on doubtful questions of law or fact to prove its validity; (3) will not expose a purchaser to the hazard of litigation or embarrassment in the peaceful enjoyment of the property; and (4) would be accepted by reasonably well-informed and prudent persons, acting on business principles and willful knowledge of the facts and their legal significance with the assurance that they could in turn sell or mortgage the property at market value.

Marketable title does not necessarily mean a perfect title, just one that is free from plausible or reasonable objections. A court of law would order the buyer to accept it if asked to decree specific performance of the sales contract. 

Title would not be marketable if there were a significant risk of litigation—the buyer cannot be forced to buy a lawsuit along with the property. An unmarketable title does not mean that the property cannot be transferred, but it does mean that certain defects in the title may limit or restrict its ownership, and the purchaser cannot be forced to accept a conveyance that is materially different from the one bargained for or “marketed” in the contract of sale.

If the buyer inserts a contract provision that the seller must deliver title “free from all defects or encumbrances,” the seller should be aware the buyer could probably reject title even if only a small or insignificant encroachment or defect existed. Unless the contract provides otherwise (in a “subject to” clause), any of the following could render title unmarketable: easements, restrictions, violations of restrictions, zoning ordinance violations, existing leases, encroachments (except slight ones), and outstanding mineral and oil rights.

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