Marketable title (real estate) is a title that a court of equity considers to be so free from defect that it will legally force its acceptance by a buyer. Marketable title does not assume that absolute absence of defect, but rather a title that a prudent, educated buyer in the reasonable course of business would accept. For real estate practitioners, the most complete reference to title issues is found in the preprinted wording contained within an agreement/contract. If you cannot produce a clear title of deed to the property then the prospective buyer should expect to lose in a specific performance action.
Merchantable title and marketable title are synonymous terms.
In the absence of an agreement to the contrary, there is an implied undertaking in the contract that the vendor (person selling the property) has a marketable title. The contract typically provides that on failure of a vendor to deliver good and marketable title, the vendee (buyer) may rescind the contract and recover any deposit.
Sellers only have to tender good and marketable title on the date the conveyance is executed (date of closing). So a seller may contract to sell property it does not currently possess. Liability will be imposed on the seller for breach only if the seller does not have good and marketable title on the date of closing.
* Defects that make title unmarketable
- Outstanding mortgages/liens
- Restrictive covenants
- Outstanding future interests of others in the property, i.e. a "reverter".
- Easements on the property
- Variations in the names of grantors and grantees
- Variations in the chain of title
- Outstanding dower interests.
- Adverse possession claims
- Structural encroachments
- Existing violations of equitable servitudes or covenants
- Zoning restriction violations
* Actions that do not defeat marketability
- Zoning restrictions (so long as there are no current violations of the restrictions)
- Other land use regulations
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