Real Estate
Quality of Title

Good Marketable Title Free from Liens or Encumbrances

The gold standard of title quality, "good marketable title free from liens or encumbrances" denotes one which is free from liens and encumbrances and of which no reasonable person could raise an objection.

Imagine a parcel with NO liens of any kind (voluntary or involuntary), NO easements or rights-of-way, NO leases (mineral extraction or otherwise), NO outstading life estates, NO paid but undiscrharged of record mortgages and NO boundary line issues (by reason of placement of fences or hedgerows). [The foregoing enumeration of title objectionsis not exhaustive.] Assume further title based upon a warranty deed and unbroken undisturbed possession for forty or more years.

Good Marketable Title (with Carve-outs)

Real estate meeting the standard decribed in the preceding paragraph is rare. Urban and suburban lots are commonly and routinely encumbered with easements -- for sewers, storm water drainage, utilities, private roads and more. Condominium and townhouse cum association properties are loaded with easements and many subdivisions come with recorded lot restrictions. Considered by many to be beneficial, such encumbrances are often excepted out by contract when a purchaser agrees to take "good marketable title subject to easements and restrictions common to the tract or subdivision."

In more rural settings, pipeline easements, rights of way, and mineral extraction leases can be found with regularity. If one were purchasing a farm to operate as a farm, without the possibility of development in mind, such encumbrances might not be burdensome. If, on the other hand, the purchaser were planning an exit strategy involving sale of the land for development, those encumbrances will have to be dealt with so as to give the developer a free hand in design.

Insurable Title

Forgive the tautology -- insurable title is one which a title insurer will insure. Since New York requires title insurers to insure only marketable title a policy may except an objection to title but under certain circumstances go on to offer affirmative insurance that the insured will not suffer any loss by reason of the defect, thus shifting the economic risk of loss by reason of the defect from the owner to the insurer.

Copyright (c) 2008, George T. Wolf. All rights reserved.