What constitutes Insurable Title?
In order for any property, residential or commercial, to change hands in a sales transaction, a title agent must perform a title search. What they find will determine if a title is Insurable or Marketable.
The agent looks through all public documents available, detailing the chain of title (or history) of the property, searching for any defect. A defect (or “cloud”) may be an unsatisfied tax bill, a boundary dispute, an undiscovered mortgage or a myriad of other things that
might cause a problem in establishing a clear (free of defect) title of ownership to the property.
If a defect (or defects) are found in the title search, a title can become “Insurable” as opposed to “Marketable”, which is what a title is called when it is entirely free from defects and can be marketed for sale with no additional effort by either the seller or potential buyer.
A title company, in issuing an Insurable Title, agrees to fix any defect if and when it becomes enough of a problem to threaten either the ownership or value of the property.
Since some defects never become a problem during the buyer’s ownership of the property, those defects remain unaddressed.
But a buyer should understand the risk they assume by accepting an Insurable rather than a Marketable Title. When the property next goes up for sale, the next buyer in the chain may insist on a Marketable Title, as opposed to one that is an Insured Title and the discrepancy may jeopardize the sale.
As a buyer, you should discuss with your title professional what type of title the seller is providing for the property in which you are interested, before you sign a purchase contract.
For more on Insurable vs. Marketable Titles, visit www.alta.org.