Good and Marketable Title

Definition

A Good and Marketable Title (also known as a Good and Merchantable Title) is a title that is free from any defects, liens, or encumbrances that might otherwise affect the property’s value, usability, or ownership. It assures the buyer that the seller has the legal authority to transfer ownership, that the property’s title is clear and not subject to disputes, and that it can be reliably used as collateral for loans.

Examples

Transaction Without Defects: If a buyer purchasing a home finds that the title is clear without any outstanding disputes, claims, or overdue taxes, they can confidently proceed with the transaction, assured of receiving a good and marketable title.
Correcting Title Issues: A seller discovers an old lien on their property prior to listing it for sale. By resolving the lien through payment or legal processes before closing the deal, the seller ensures that the title can be conveyed as good and marketable.
Title Insurance: A buyer purchases title insurance to protect against future claims or issues that may arise after the purchase. This measure adds an extra layer of security, effectively guaranteeing the buyer a good and marketable title.

Frequently Asked Questions (FAQs)

Q1: What is the difference between a good and marketable title and a clear title?

A good and marketable title guarantees the title is free from any defects or claims, and that the seller has the legal right to transfer it. A clear title similarly indicates there’s no dispute or ambiguity in ownership but focuses more on the absence of defects.

Q2: Why is having a good and marketable title important in a real estate transaction?

It ensures that the buyer receives a property without any legal issues or debts attached, which could affect the property’s value or lead to legal disputes.

Q3: What are some common types of encumbrances that could affect a title?

Common encumbrances include liens, easements, encroachments, unpaid taxes, and restrictive covenants.

Q4: Can a property with unresolved liens have a good and marketable title?

No, any unresolved liens must be settled before a title can be considered good and marketable.

Q5: How does a title search work in ensuring a good and marketable title?

A title search is conducted to uncover any potential issues such as unpaid property taxes, liens, mortgages, or legal disputes concerning the property. This ensures that such issues are resolved before the sale.

Q6: What is the role of title insurance?

Title insurance protects buyers and lenders against financial loss from defects in the title to a property that were not discovered during the title search.

Clear Title: A title that is free of encumbrances, claims, and legal questions.
Title Insurance: A form of indemnity insurance that protects against financial loss from defects in title to real property.
Title Search: The process of examining public records to determine and confirm a property’s legal ownership and to identify any potential liens or encumbrances.
Encumbrance: A claim, lien, or restriction on a property’s title, which can affect the property’s transferability and value.
Lien: A legal claim on assets which allows the creditor to obtain access to the property if debts are not paid.

Online Resources

References

American Land Title Association - ALTA Owner’s Policy
Consumer Financial Protection Bureau - Real Estate Settlement Procedures Act (RESPA)
National Association of Realtors® - Guide to Real Estate Titles

Suggested Books for Further Studies

“The Law of Real Property” by Richard R. Powell
“Title Insurance: A Comprehensive Overview of the Law and Coverage” by James Lighthill
“The Essentials of Real Estate Law” by Lynn T. Slossberg
“Real Estate Law” by Marianne Jennings

Real Estate Basics: Good and Marketable Title Fundamentals Quiz

### What is a defining feature of a good and marketable title? - [ ] It includes a prior lien. - [ ] It requires regular renewal. - [x] It is free from any defects, liens, or encumbrances. - [ ] It can only be transferred to direct family members. > **Explanation:** A good and marketable title ensures that the title is free from any defects, liens, or encumbrances that could affect the property’s value or usability. ### How does title insurance provide security to a buyer? - [ ] It pays for property taxes. - [x] It protects against financial loss from defects in the title. - [ ] It guarantees rental income. - [ ] It insures against property damage. > **Explanation:** Title insurance protects buyers against financial loss from defects in the title that were not discovered during a title search. ### Which of the following is not a common encumbrance affecting a title? - [ ] Lien - [ ] Easement - [ ] Unpaid taxes - [x] Property address > **Explanation:** A property address does not affect the title. Common encumbrances include liens, easements, and unpaid taxes. ### What must be done to obtain a good and marketable title if issues are found during a title search? - [ ] Change property ownership. - [x] Resolve all found issues such as liens or unpaid taxes. - [ ] Obtain consent from the previous owner. - [ ] None of these are necessary. > **Explanation:** To obtain a good and marketable title, any issues like liens or unpaid taxes found during a title search must be resolved. ### Who typically conducts a title search to ensure a good and marketable title? - [ ] Real estate agent - [x] Title company or attorney - [ ] Property inspector - [ ] Mortgage lender > **Explanation:** A title company or attorney typically conducts a title search to ensure the property has a good and marketable title. ### What is the main purpose of a title search? - [ ] To evaluate the replacement cost of the property. - [ ] To determine current market value. - [x] To identify any defects, liens, or encumbrances on the property’s title. - [ ] To appraise the property’s rental potential. > **Explanation:** The main purpose of a title search is to identify any defects, liens, or encumbrances on the property’s title. ### Which term is synonymous with a good and marketable title? - [x] Good and merchantable title - [ ] Market value title - [ ] Provisional title - [ ] Equitable title > **Explanation:** The term “good and merchantable title” is used interchangeably with “good and marketable title.” ### What does a title company typically provide to assure the buyer of a clear title? - [ ] Mortgage advice - [ ] Property appraisal - [x] Title insurance - [ ] Inspection services > **Explanation:** A title company typically provides title insurance to the buyer to assure them of a clear title. ### What role does a clear title play in obtaining a mortgage? - [ ] It assures higher mortgage rates. - [ ] It is unnecessary for obtaining a mortgage. - [x] It ensures that the lender can confidently secure the loan against the property. - [ ] It prevents any form of appraisal. > **Explanation:** A clear title ensures that the lender can confidently secure the loan against the property without concerns over ownership disputes or claims. ### What happens if a title is found to have unresolved disputes after a purchase? - [ ] The buyer gains automatic legal precedence. - [ ] The buyer must vacate the property. - [x] The title insurance will typically protect the buyer against financial loss arising from the unresolved disputes. - [ ] The seller is automatically exempt from liability. > **Explanation:** If there are unresolved disputes after purchase, title insurance typically protects the buyer against financial loss arising from those disputes.