Also known as: marketable titles · merchantable title
Written by attorneys · grounded in primary & secondary sources — see below
A standard of title quality in land sale contracts that requires the seller to deliver title free from reasonable doubt and acceptable to a reasonably prudent purchaser with full knowledge of the facts. The seller generally bears the duty to convey such title at closing. When title fails this standard due to defects such as gaps in the chain or unreleased liens, the buyer may refuse to close and pursue rescission or damages unless the contract provides otherwise.
Miguel Mendoza contracted to sell land to Mustafa Mahmoud. A title search revealed a missing deed in the chain of title for one parcel. Mahmoud refused to close and demanded return of the deposit. Because the gap created reasonable doubt about ownership, the title was unmarketable and Mahmoud was entitled to walk away.
Marcus Mitchell agreed to purchase property from Melissa Mills. Title examination uncovered unreleased mechanics liens from prior renovations. Mills could not clear the liens before closing. Mitchell properly refused to proceed because the liens rendered title unmarketable.
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Malcolm McKinley contracted to buy land from Mohan Malhotra. The contract required marketable title, yet an old easement remained of record. Malhotra offered a title policy at standard rates. McKinley could still reject the tender because insurable title did not satisfy the marketable title obligation.
Unreleased liens, gaps in the chain of title, outstanding easements or covenants, and adverse claims all create reasonable doubt that prevents a prudent purchaser from accepting the title.
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Yes. When the seller cannot deliver marketable title at closing the buyer is excused from performance and may recover the deposit plus damages.
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No. Insurable title is a distinct and sometimes less demanding standard. A contract that expressly requires marketable title is not satisfied by an insurer's willingness to issue a policy.
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A buyer may rescind immediately upon discovering an incurable title defect that prevents the seller from delivering marketable title at closing.
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…the above described real estate to the second party by Warranty Deed with an abstract of title, certified to date showing good merchantable title or an Owners Policy of Title Insurance in the amount of the sale price, guaranteeing said title to party of the second part, free and clear of all encumbrances except special taxes subject,…