Marketable Title: Definition & Importance

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  • 0:06 What Is a Marketable Title?
  • 2:51 Fixing Unmarketable Title
  • 3:42 Marketable Title Acts
  • 5:04 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

One of the most important concepts in real estate sales you'll probably never hear about unless you don't have it is marketable title. In this lesson, you'll learn what marketable title is and why it's important.

What Is a Marketable Title?

Carmen is in the process of selling her house and has just accepted an offer. That's the good news. But Carmen's real estate agent has just delivered some bad news as well. Turns out, the title agent hired to do a routine title search on the property before the closing has found a problem with Carmen's title to the property. Having title to real estate means you have an ownership interest in it.

Apparently, Carmen's neighbor, Dan, has just filed a quiet title lawsuit claiming that he actually owns a 1,000-square-foot strip of Carmen's property by adverse possession. In a nutshell, Dan's lawsuit claims that he's entitled to the 1,000-square-foot strip because he has adversely possessed the property long enough to gain title to it. Dan's also filed a notice in the land records, called a lis pendens, to notify potential purchasers about the lawsuit, which means purchasers of the property will be subject to the results of the lawsuit. Carmen's agent explains that the lawsuit makes her title unmarketable, and even worse, the buyer is about to pull out of the sale.

Unfortunately, Carmen is no longer in possession of a marketable title, or a title that is sufficiently clear of defects such that a reasonably prudent purchaser will accept title to the property. Marketable title doesn't require absolute certainty that there are no defects, but only that there is no reasonable doubt that calls into question that the seller holds good title.

On the other hand, unmarketable title is title to real estate with a substantial defect that creates an unreasonable risk to a purchaser of either being pulled into costly litigation or suffering a substantial economic loss such that a reasonably prudent purchaser will not accept the title. While the title may end up being good, the risk is just too substantial for a reasonable purchaser to take a chance with purchasing the property. In Carmen's case, a reasonably prudent purchaser simply will not want to take that risk that Dan wins and ends up snagging 1,000 square feet of his newly purchased land.

You should keep in mind that a claim of adverse possession is just one of many types of defects or challenges to an owner's title to property that can make the title unmarketable. Other examples include, but are not limited to, unreleased liens that have been paid and a gap in the owner's chain of title. A chain of title is the historical record or deeds of the transfer of real estate throughout time from the original owner to the present owner and all the transfers in between. A gap in the chain means there's not documentation that shows all the transfers up to the present owner and calls into question whether the present owner's title is good.

Fixing Unmarketable Title

What can Carmen do to make her title marketable? Fixing the problem is referred to as clearing title. In Carmen's case, she can either fight it out in court or try to negotiate. A quiet title action, which is what Dan filed, is a special type of lawsuit that will establish the legal title to Carmen's property. It's used to fix a myriad of title defects. On the other hand, it takes time.

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