Friday, January 7, 2011

Marketable Title vs Insurable Title

Title claims in the current foreclosure market, such as the Bank of America/Countrywide issue, make this topic interesting for both Realtors and real estate consumers.  Lenders are more frequently looking for marketable title on properties, especially foreclosures, prior to closing.

Sales contracts generally require the seller to convey a marketable title to the purchaser. A lender will generally require the title to the property securing the loan to be marketable. 

Insurable title may come with a host of defects.  However, despite these defects, a title insurance underwriter weighs the risks involved and allows the title agent to issue a title policy even though there may be blemishes and potential problems down the road.  Ironically, should the value of the property increase dramatically, the buyer is only protected to the extent of the original purchase price.

In contrast, marketable title is a title that is clean, has no defects that will come up again in a future title examination when the property owner attempts to obtain financing or more importantly tries to sell the property.  Accepting insurable title could result in problems which need to be addressed at a later date resulting in both time and money.

Translated to the current marketplace, you should make sure you have an insurable title on the property you purchase, especially in a foreclosure.  If you purchase a marketable title, make sure there are no exceptions added by the title company that excludes them from liability if you later sell the property and the title is deemed not marketable.

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