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Marketable Title

DEFINITION

Clean title that would allow a reasonably prudent buyer to have full interest in the purchased property.

EXPLANATION

A marketable title is a clean title that allows a buyer to have full interest in a purchased property. This means that a property is free and clear of any interests (i.e. encumbrances, involuntary liens) that would “cloud” the title and affect the ownership rights of a grantee.

All property taxes must be paid off prior to the sale or must be disclosed to the buyer as a part of the transaction.

Implied warranty means that a grantor owns a marketable title that can be freely transferred. Furthermore, the property has not been sold or transferred to anyone else, and will remain in the grantor’s possession until the transfer of the deed.

Most property deeds — including a grant deed — contain title covenants that ensure a marketable title and implied warranty between the grantor and grantee.

Warranty Deed and Marketable Title

A warranty deed transfers the real property interests of one party to another and includes a marketable title and implied warranty.

Warranty deeds offer a high level of protection for grantees. It should not be used as a substitute for purchasing title insurance, however. (Only title insurance can guarantee the prevention of loss due to undisclosed liens.) The overwhelming majority of real estate purchases in California do not utilize warranty deeds as buyers typically purchase title insurance.

Potential Title Defects That Affect Marketability of Title

Claims of adverse possession

Covenants that restrict land use

Encumbrances

Property easements

Conflicting names on title

Future party’s that hold interest in property

Encroachments that affect land description

Marketable title refers to a property that is free of defects attached to its title. Assuming a property does not have a defect on the title and is in the process of being sold, if the buyer’s contingency period expires acceptance of the property will be required. This means the property must be purchased by the buyer unless there are other components of the transaction which prevents its purchase such as when a buyer is denied financing. When a property is not marketable, the buyer can terminate the purchase offer.

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