Consequences Of An Unmarketable Title

By: Bob Miles

Put simply, the title to your real estate is unmarketable if it doesn't belong to you, if it has encumbrances such as mortgages on it, or if there is a reasonable claim against it by someone else. So what are the consequences of having an unmarketable title to your real estate?

1. An unmarketable title can tank a sales transaction - it will allow the buyer to back out of a real estate purchase contract even after he's already signed it. But the seller can cure any defects in the title right up to the point of closing - it's just that the buyer can refuse to close the sale until and unless any title defects are cleared up. If you miss the contractual closing date because of title defects, though, then the buyer may have the right to back out. In some states the buyer must give a seller holding unmarketable title early notice and a certain period to cure the title defect. But if you are a seller and don't live in one of those states, beware - if your real estate sale contract with the buyer states that "time is of the essence", then you have until the contractual closing date and no later to cure all title defects necessary to make the tile marketable.

2. If the title defect is minor (a claim against the title with only a remote chance of ever being enforced, for example), then the seller might be able to obtain a court order forcing the buyer to purchase the property, although the price of the real estate may be reduced to compensate for the title defect.

3. If the buyer properly backs out of a real estate sales contract because of the seller's failure to provide marketable title, then the buyer can sue the seller for the return of any down payment, and even "benefit of the bargain" damages in some states (the difference by which the market price for the property may have exceeded the contracted purchase price).

Unmarketable title is the buyer's bludgeon, not the seller's. If the buyer wants the property anyway, then the seller must abide by the real estate sale contract and sell it to him. If the title defect is small, the buyer can even force the seller to accept a small discount in the price; but if the defect is large, the buyer cannot force the seller to sell and then demand a large discount on the price because of the title defect.

DISCLAIMER: The foregoing is intended for reference purposes only and not as legal advice.

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