Puzzled by the difference between a marketable and insurable title? We’re here to clear it up.
Buying new land or real estate can be a difficult and stressful endeavor. Finding a dream property can take months of research, and even after you’ve found your perfect property, you still must go through the final transaction process. One of the most important factors to keep in mind during this process is the marketability of the title.
Marketability refers to the ownership of property; one needs to make sure that the seller provides proper evidence of ownership before the transaction is complete. Ownership issues can stand in the way of you finally closing on a property.
So, let’s take a look at the key differences between a marketable and insurable title and how you can avoid any ownership problems with a property title.
A marketable title is your best bet for title insurance when securing a new property.
“All marketable title is insurable, but not all insurable title is marketable,” says Rick Davis, an attorney who specializes in real estate law. A marketable title must be free of any issues regarding the chain of title, that is, the history of ownership, in order for it to be considered as such. If a title is marketable, it can be easily transferred to a new owner without any claims being made by another party.
Thomas Moens, attorney at law at Moens Law Offices, speaks further on this issue, saying that a “marketable title is as clear as its name – the market will accept it. The real estate is free of liens and other encumbrances, and the person or entity selling the real estate owns the real estate. Standing on its own, title is reasonably free from defect.”
Insurable titles do not have the guarantees of marketable titles. Thomas Moens goes on to say that insurable titles can be “darned near anything.”
“Depending on the title agency and the title company, as well as their relationship with the seller, essentially any property can be insurable. The only limit is the amount of risk the title insurer is willing to accept.”
If there is a defect in the chain of title, it is said that the real estate has an insurable title and the defect must be repaired in order for the sale to take place. A title underwriter has to issue a title insurance policy for the insurable title to “insure over” a defect that makes the title unmarketable. A defect can refer to a mortgage that hasn’t been paid off, an unsatisfied tax bill or any other kind of debt that the owner of the real estate must deal with before the transaction is closed.
Bryant H. Dunivan Jr., esq. attorney at law at the Law Offices of Michael J. Owen, states, “If a person takes only insurable title when they purchase, but do not receive marketable title, the property may be very difficult to sell and may have to be sold at a discount”.
Rick Davis advises that “whenever a homeowner is purchasing a property with insurable, but not marketable title, they should be careful to understand exactly what title defects are present,” so it’s important that you don’t panic, since those issues can be easily resolved to make the title marketable. He cites the primary reason to use insurable title is for acquiring a REO property from a bank.
Rick warns that the property owner “may have to participate in litigation or in some cases take a cash payment from the title insurance company in exchange for the home.” Obviously, this is a case most property owners would like to avoid at all costs.
Brandon Miller, at Fidelity National Title, explains the main difference between the two titles, saying: “In a nutshell, a marketable title is free from any defects and ready to sale and to be fully insured by title to back it up. Insurable title is when known defects in the chain of title exist but have been assessed agreed by that specific title company to insure against the risk in advance.”
When you come to the full understanding of this difference between a marketable and insurable title, you can be ready for your real estate hunt, and on your way to finding your perfect dream property.
So when you purchase your next land lot, make sure it comes complete with a marketable title, to steer clear of any ownership issues.
Photo Credit: Unsplash | Green Chameleon