With the Savings and Loan crisis in the 1980’s and 1990’s, a refinancing boom in 2003-2005 and now with the ongoing foreclosure debacle, it is becoming increasingly difficult to be assured that your home purchase will be delivered free and clear without title defects.  It is easier to spot physical defects such as encroachments but will improperly discharged mortgages or bank reassignments be discovered? 

Because Title Insurers have noted the complexity of real estate, two types of holding Title have emerged as a result--INSURABLE TITLE and MARKETABLE TITLE.  In the following paragraphs we’ll explore what they mean for the home buyer and which one affords more protection.

A marketable title is the “gold standard” and is a title that has no known defects.  This type of title accounts for the majority of title policies issued. 

An insurable title is a title that may have issues that prevent it from being delivered clean, clear and marketable but not so quirk some that it would prevent a Title Insurer from insuring.  In short, the known defects are “acceptable”.  Without this type of title many properties would not be able to sell.  Here are some examples of when an insurable title may be used:  a tax sale in a chain of title, a series of property lot line errors, pool, septic system, barn or other structure encroaching on a lot, a missing or deceased owner or heir, an old mortgage not properly discharged, unreleased liens.  These are overlooked and the title becomes “insurable” when a Title Insurer is willing to accept the deficiencies and write the policy.  The Title Insurer of course is motivated to pick up this policy by noting the limited level of risk.  The exception will be noted in the coverage section of the resultant Title Policy.

There is no requirement that a property convey without title problems—and in fact there are some rare circumstances where properties are sold with major title defects.  This of course may not be the case with mortgaged money as lending institutions have imposed their own restrictions.  The job of the closing attorney in many cases has been to resolve as many title difficulties as possible.  The benefit being that the “baggage” of the known title defects is not simply passed along to the next owner but rather addressed at the earliest occurrence.  The value of “insurable” title is that many difficult properties eventually find their way to the closing table instead of being tied up for an endless amount of time until their issues are fully resolved.

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