Real Estate Contracts - Marketable Title Flashcards
What is the implied covenant of marketable title?
In every land sale contract, the seller has a duty to convey marketable title to the buyer at closing. Marketable title is title that is free from an unreasonable risk of litigation.
Defects in title that render title unmarketable include:
- Title acquired by adverse possession that has not yet been quieted (i.e., supported by a judicial decree).
- Future interest holders that have not agreed to the transfer;
- Private encumbrances (e.g., mortgage, covenant, option, or easement);
- Violation of a zoning ordinance;
OR
- Significant physical defect (encroachment on the land that is incurable).
If there is a defect in title rendering title unmarketable…
…, it must be fixed or cured BEFORE closing (at which point the contract and deed merge and the deed controls). If the seller cannot deliver marketable title at closing, the buyer can rescind the contract without penalty.
Can purchaser waive marketable title requirement?
Yes, the purchaser may choose to waive the requirement that the seller deliver marketable title. However, a seller CANNOT cancel a land sale contract for failure to deliver marketable title if the buyer chooses to waive the requirement.
building v zoning code violations and marketable title
building = not an encumbrance, title still marketable
zone violation= ENCUMBRANCE
To be considered marketable, the title must be free of encumbrances, such as mortgages, restrictive covenants and easements. In establishing whether an encumbrance exists with regard to local codes and ordinances, it is important to distinguish between building codes and zoning laws.
A property’s being in violation of the building code is NOT considered an encumbrance, and title to that building is marketable.
In contrast, where a property IS in violation of zoning laws, the violation is considered an encumbrance, and the title is unmarketable.
