A title that is called a Marketable Title is one that corresponds to a particular piece of property that shows a chain of ownership that is clear and free from “clouds” or
Since a search of its history shows nothing likely to pop up (such as a undiscovered existing mortgage or unpaid tax bill) that may cause the new buyer of the property trouble in the future, a Marketable Title means it can be marketed for sale with no additional effort by either the seller or potential buyer.
Marketable vs. Insurable
If a defect (or defects) are found in the title search, a title can become Insurable as opposed to Marketable. That means that rather than fixing the defect (probably an expensive and time-consuming process), a title company may agree to insure against any problems that the discovered defect may cause in the future.
To be clear, the title insurance company agrees to fix the defect if it ever becomes an immediate problem. Some defects never become a problem (or threaten either the ownership or value of the property) so the title company (in the business of risk management) would rather defer that risk than correct it.
But a buyer should accept such a title with a clear idea of what risk they are taking on. Though the defect found in the title of the property to be purchased may not threaten trouble during the time period the buyer owns the house, it may prove true that when the house goes up for sale again in the future, the next buyer in the chain may not be willing to accept an Insurable Title and insist on
a Marketable Title.
Be sure to discuss the difference in these two titles as regards any property you are considering purchasing with your title agent and be certain that you know the type of title the seller intends to convey before you sign a purchase contract.
For more on the differences between a Marketable and Insurable Title, visit www.alta.org.