Marketable Title vs Insurable Title (Florida REALTOR Magazine - March 2010)- Apr 26, 2010 Archive
You as an agent represent the buyer who is interested in a bank-owned (REO) property. The bank give you an addendum for the buyer to sign which states that the bank is giving the buyer an insurable title, not a marketable title. Why??
Marketable title is generally considered to be the state of title that a reasonable person would expect in a transaction. Insurable title is the state of title that a title insurer would insure without certain exceptions.
There are many impediments to marketable title, First, a survey may disclose easements, improper boundaries, illegal structures or encroachments. These issues may be cleared but with the seller's proper affidavit, if the seller owned the property for a number of years. In case of a bank as seller, an affidavit is not likely. Second, if there's a lease that predated the mortgage, it may not be cut off by forclosure.
Also, if the property doesn't comply with building codes or if there is a violation of convenants or there are restrictions on the property, the foreclosure may not extinquish those problems. Finally, there may be liens on the property that survived the foreclosure. Though a title insurer may insure the title with these problems, they can be serious stumbling blocks for a seller delivering marketable title.
Due to these possible impediments to marketable title, banks are now requiring buyers of REO properties to accept insurable rather than marketable title.
As an agent representing the buyer, you aren't expected nor are you encouraged to give advice on the state of title that the buyer will receive. However, you may want to advise the buyer to consult with a real estate attorney, as the buyer may be receiving fewer protections with insurable than with a marketable title.