Marketable Title vs. Insurable Title

I have had a lot of questions recently regarding the topic of marketable vs. insurable title. They are both terms of art, in that they are unique terms to the legal and title industry.  They are not easily defined with comparable examples.

When a title is marketable it means that the chain of ownership (title) to a particular piece of property is clear and free from defects.  And as such, it can be marketed for sale without additional effort by the seller or potential buyer.

Picture of House

In contrast an insurable title does, or may have a known defect or defects in the chain of title.  However, with an insurable title, a title insurance company has agreed in advance to provide insurance against the defects ever affecting the ownership or value of the property.  

If a property does not have a current, valid title insurance policy and there is a defect in the chain of title, then the defect must be cured or repaired before a seller can convey marketable title.  If there is a current policy, rather than curing or fixing the defect, which can be very expensive and time consuming, the title insurance company may elect to insure against any problem the defect may cause in the future.  That is, the insurance company agrees to fix the problem only when – and IF – it ever becomes an immediate problem.  Some defects in title may never become a problem or threaten the value or ownership of the property.  Title insurance companies, like any insurance companies are in the business of risk management, and whenever possible would rather defer the risk then to pay to address/correct it.

One of the biggest problems with insurable title is that a buyer of a property accepting insurable title (rather than marketable title) is taking a risk of their own.  It’s not that the defects may ever threaten the value or ownership of the property, but that upon resale of the property the next buyer may not be as willing to accept the insurable title and may demand a marketable title. 

Be sure that you know the type of title the seller intends to convey before you sign a purchase contract.

 

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