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Marketable Title

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The goal of most real estate transactions is to convey a marketable title in exchange for the purchase price. Sometimes called merchantable title, the marketable title is one that the seller or grantor truly owns; it must also be free from any encumbrances and defects not permitted.

The definition is simple enough, but the truth is that providing a marketable title is actually very challenging. To provide clear title, the seller's attorney or title company must examine the property's past and present. The title's past chain of title and current situation must be examined.

The difficulty of this task becomes apparent when you consider that titles to properties in the U.S. alone have exchanged owners numerous times over two centuries in some places. This difficulty is compounded by the fact that sometimes those transfers are not adequately recorded.

Nevertheless, all buyers have a right to demand clear, marketable title. A clear, marketable title means that the buyer or grantee should be able to hold the title without fear of litigation. Practical considerations have forced attorneys, courts and local officials to arrive at certain accepted standards as to what constitutes marketable title. For example, it is not necessary in Illinois to go back more than 40 years when examining the chain of title.

Marketable title does not mean that there are no clouds or liens on the title. Rather, marketable title means that only those encumbrances , liens or clouds permitted by the contract or buyer are allowed on the title. The following are some of most common encumbrances, liens, clouds and issues that may hinder the ability to provide clear title:

• Seller's true ownership
• Liens
• Easements
• Building and zoning restrictions
• Leases and tenants
• Encroachments
• Title insurance coverage

All of these elements will be discussed in detail below.

Buyers and their attorneys approach marketability issues with great care. It's important that marketability issues be handled prior to the closing. After the transaction is concluded, there is very little that the buyer (now the new owner) can do to collect damages, except through a lengthy and costly lawsuit.

On the other hand, sellers must also be aware of the true marketability of their title. Attorneys for buyers who decide to try to back out of a deal often examine the title carefully to search for any minute issue that can be used to deem the property non-marketable.