Real Estate PL Topic - Marketable Title and Marketable Title Act

Marketable Title and Marketable Title Act

Marketable Title

Under the terms of the typical real estate sales contract, the seller is required to deliver to the buyer marketable title to the property – that is, title that is acceptable to a reasonably prudent person and which will not subject the buyer to litigation. To be marketable, a title must

• disclose no serious defects and not depend on doubtful questions of law or fact to prove its validity;
• not expose a purchaser to the hazard of litigation or threaten the quiet enjoyment of the property; and
• convince a reasonably well-informed and prudent purchaser, acting on business principles and with knowledge of the facts and their legal significance, that the purchaser could sell or mortgage the property at a later time.

Although a title that does not meet these requirements still can be transferred, it contains certain defects that may limit or restrict its ownership. A buyer cannot be forced to accept a conveyance that is materially different from the one bargained for in the sales contract, but questions of marketable title must be raised by a buyer before acceptance of the deed. Once a buyer has accepted a deed with unmarketable title, the only available legal recourse may be to sue the seller under any covenants of warranty contained in the deed.

In some states, a preliminary title search is conducted as soon as an offer to purchase has been accepted. In fact, it may be customary to include a contingency in the sales contract that gives the buyer the right to review and approve the title report before proceeding with the purchase. A preliminary title report also benefits the seller by giving the seller an early opportunity to cure title defects.

Marketable Title Act

A title search is an examination of the public records to determine whether any defects exist in the chain of title. The records of the conveyances of ownership are examined, beginning with the present owner. Then the title is traced backward to its origin (or 40 to 60 years or some definite period of time, depending on state statute). The time beyond which the title must be searched can be limited in states that have adopted the Marketable Title Act. These states recognize that a review of the same records from, say, the 1800s, over and over again for each conveyance is not a productive use of time or money. This law also extinguishes certain interests and cures certain defects arising before the root of the title is found – the conveyance that establishes the source of the chain of title.