Also known as: merchantable titles · marketable title · marketable titles
Written by attorneys · grounded in primary & secondary sources — see below
A standard of title quality in land sale contracts requiring that the title be free from reasonable doubt so that a reasonably prudent purchaser with full knowledge of the facts would accept it. The seller must deliver this quality of title at closing unless the contract specifies a different standard such as insurable title. Recorded encumbrances, breaks in the chain of title, or outstanding adverse claims render title unmarketable and permit the buyer to refuse performance or seek rescission.
Michelle Murphy contracted to sell land to Miguel Mendoza. A title search revealed a recorded option held by a long-absent third party. Mendoza refused to close because the option created reasonable doubt about clear ownership. Murphy could not cure the defect within the contract period, so Mendoza rescinded and recovered the deposit.
Maria Morales agreed to buy property from Mason McCarthy. The title commitment showed an unreleased supplier lien on fixtures. McCarthy could not obtain a release before the closing date. Morales therefore declined to perform and sued for return of the earnest money.
Select any source to read its text and confirm it supports the definition.
Ming Ma contracted to purchase an industrial site from Millennium Media. The title insurer offered to cover an old easement at standard rates. The contract required marketable title rather than insurable title. Ma refused to close because the easement still created doubt for a prudent buyer.
Unreleased liens, breaks in the chain of title, outstanding easements or covenants, and recorded adverse claims create reasonable doubt that prevents a prudent purchaser from accepting the title.
Insurable title requires only that a reputable insurer will cover the title at standard rates. Marketable title demands freedom from reasonable doubt even if insurance is available, so a contract calling for marketable title is not satisfied by an offer of insurance alone.
The buyer may refuse to close, rescind the contract, and recover any deposit or earnest money. Damages may also be available unless the contract provides otherwise or the buyer waives the defect.
Many contracts grant the seller a cure period before closing. If the defect cannot be cured within that period, the buyer may still refuse performance.
…the above described real estate to the second party by Warranty Deed with an abstract of title, certified to date showing good merchantable title or an Owners Policy of Title Insurance in the amount of the sale price, guaranteeing said title to party of the second part, free and clear of all encumbrances except special taxes subject,…