Also known as: title defects · defect of title · defects of title · defective title
Written by attorneys — see sources below.
An encumbrance or irregularity in the chain of title that prevents the seller from conveying marketable title. Marketable title is free from reasonable doubt such that a reasonably prudent purchaser with full knowledge of the facts would accept it. Title defects include unreleased liens, breaks in the chain of title, outstanding interests such as easements or covenants, and litigation that clouds title. The buyer may rescind or refuse to perform if the seller cannot cure the defect by closing.
Tyrone Tran contracted to sell land to Tanya Tang. A title search revealed a recorded option held by a missing former tenant granting repurchase rights over part of the parcel. Tyrone could not locate the option holder or obtain a release within the contract's cure period. Tanya refused to close and sought return of her deposit because the outstanding option created reasonable doubt about clear ownership.
Tyler Taylor agreed to buy property from Thomas Thompson under a contract requiring marketable title. The title commitment listed an unused recorded easement as a standard exception, and the insurer offered to insure at ordinary rates. Tyler refused to close, asserting that the easement impaired planned development and created doubt a prudent buyer would not accept. The tender of insurable title did not satisfy the marketable-title obligation.
Prior to 1979, corporations operated warehouses and chemical processing plants on approximately 30 acres of land near the Guadalupe River in Santa Clara County. These companies maintained underground tanks, pumps, and pipelines for the storage, handling, and disposal of hazardous substances. The hazardous substances eventually contaminated the soil, subsoil, and groundwater. In 1979, Kimball Small Investments 103 purchased the property. Between 1979 and 1981, the California Department of Health Services ordered Kimball Small Investments 103 to remedy the toxic contamination. Kimball Small Investments 103 did not comply with the order. In early October 1986, plaintiffs Lick Mill Creek Apartments and Prometheus Development Company, Inc. acquired lot 1 of the property from Kimball Small Investments 103. In connection with this acquisition, plaintiffs purchased an American Land Title Insurance Association policy from Chicago Title Insurance Company. Plaintiffs subsequently acquired lots 2 and 3 from Kimball Small Investments 103 and obtained two additional American Land Title Insurance Association policies from Chicago Title Insurance Company and First American Title Insurance Company. Chicago Title Insurance Company commissioned a survey and inspection of the property by Carroll Resources Engineering & Management before issuing the first policy. The entire site was surveyed and inspected before the later policies were issued. Carroll Resources noted the presence of pipes, tanks, pumps, and other improvements on the property. At the time each of the policies was issued, the Department of Health Services, the Regional Water Quality Control Board, and the Santa Clara County Environmental Health Department maintained records disclosing the presence of hazardous substances on the subject property. Following their purchase of the property, plaintiffs incurred costs for removal and clean-up of the hazardous substances to mitigate their damages and avoid costs of compliance with government mandates. Plaintiffs claimed their expenses were a substitute for restitution to the State Hazardous Substance Account and response costs under the Comprehensive Environmental Response, Compensation, and Liability Act. Plaintiffs sought indemnity from defendants for the sums expended in their cleanup efforts, but defendants denied coverage. Plaintiffs Lick Mill Creek Apartments and Prometheus Development Company, Inc. appealed from a judgment of dismissal entered after the trial court sustained, without leave to amend, the demurrer of defendants Chicago Title Insurance Company and First American Title Insurance Company to plaintiffs’ first amended complaint.
View caseUnreleased liens, breaks in the chain of title, outstanding interests such as easements or covenants, and litigation that clouds title all constitute title defects. A recorded option held by an unlocatable party creates reasonable doubt that prevents a prudent purchaser from accepting the title.
Supporting sources
Yes. When the contract requires marketable title, the willingness of a title insurer to cover an easement or other defect at standard rates does not discharge the seller's obligation. Marketability focuses on whether a prudent purchaser would accept the title free from reasonable doubt, not merely on the availability of insurance.
Supporting sources
No, provided the seller tenders a release within the contract's cure period. Once the release is recorded, the filing no longer creates an outstanding lien-like encumbrance on the real property, and the buyer cannot rely on it as grounds for rescission.
Supporting sources
…himself $15,000. Obviously the billing situation in a typical litigated case is more complex than in this bedrock example of a defective title claim, but some of the same principles are surely applicable. If A has a claim for contract damages in the amount of $10,000 against B, and retains an attorney to prosecute the claim, it…