What is the Difference in Marketable Title and Insurable Title?

by | Jun 24, 2016 | Legal Tips

When a title problem is discovered often times the closing attorney may say insurable title is possible but not marketable title. So what does this mean and how does it affect the real estate transaction?

Generally, all marketable title is insurable, but not all insurable title is marketable. Marketable title exists when a reasonably prudent purchaser, knowing all of the facts, would be willing to purchase the property. Marketable title is free of encumbrances and defects and is reasonably believed to be valid.

On the other hand, insurable title is considered by many to be a lesser quality title. Insurable title is most often described as when a known defect exists but a title insurance company is willing to insure over the title issue at normal market rates. In short, if the matter causes an issue in the future, the title insurance company agrees to correct the issue and defend title. Many of these issues are minor and will likely never become a problem or threaten the validity of ownership. Therefore, the main difference  is marketable title is title a reasonably prudent purchaser must find acceptable where insurable title only requires a title company to insure against the encumbrance or title defect.

The Central Carolina Realtors Association contract requires the seller to provide marketable title. However, the buyer upon learning of a title issue may decide that he will accept insurable title as to that issue. If the buyer agrees, the closing attorney typically will prepare and ask the buyer to sign a hold harmless agreement stating that they have been informed of the issue and agrees to accept that matter as insurable only.

Most contracts from auction firms, relocation companies and REOs only offer insurable title. By accepting the contract the buyer agrees to accept title if a title insurance company is willing to insure. The biggest risk in accepting insurable title is the possibility that a future buyer may refuse to accept insurable title.

All insurable title issues are not the same and should be evaluated by a competent and experienced closing attorney. The closing attorney can help the buyer evaluate whether or not the title issue is an acceptable risk.

Historical Fact: Wayne Street was named for “Mad” Anthony Wayne of Pennsylvania. Wayne was appointed as brigadier general in 1777. He was awarded a gold medal by Congress in 1779 for his victory at Stoney Point, New York.  Wayne also led troops in Savannah and Charlestown (Charleston) after the 1782 British Evacuation. Wayne also served in the US House of Representatives. Wayne County, North Carolina and Fort Wayne, Indiana are just a few of the towns and counties in the US named for him. 

Photo by pasa47

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