Marketable title (sometimes called "merchantable title") is of much greater concern for the sale of real estate than with the same of personal property, mainly because of the complex and sometimes arcane rules applicable to real property. Property law recognizes a myriad of interests and procedures in real estate including easements, future interests, leaseholds, mortgages, and adverse possession, among others. For this reason it is quite likely that the interests in a given parcel of land will be in dispute - the bank claims a mortgage over the real estate that was taken out by the previous owner, the city claims the right to build a road across your land (an easement), etc. Even if these claims are in fact invalid, the very fact that there is enough credibility to them to force them into court to resolve them could make your land quite difficult to sell. The absence of credible or serious claims against your full possession and quiet enjoyment of the land (that you can then sell to a potential buyer) is what is known as "marketable title".

On the other hand, if the claims against your title are substantial enough to make a reasonable buyer think twice before agreeing to purchase your property at anywhere near the going market price, then your title is unmarketable. The consequence of this is that if the buyer finds out that your title is unmarketable after signing a real estate sales contract with you, he can refuse to close the sale until you clear up the problem, and there won't be a whole lot you can do about it except either give him what he wants or wave bye-bye to him (and his money!). Furthermore, if the real estate sales contract states that "time is of the essence", then you have until the contractual closing date and not a moment longer to offer the buyer marketable title.

Following are the legal requirements for marketable title:

(1)Seller has actual title to the property in fee simple absolute (the most complete form of real property ownership)

(2)The title is free from encumbrances (mortgages, leaseholds, etc.). If the property has encumbrances, then a clear description of them in the sales contract should close this loophole.

(3) The title is free from reasonable doubt. An examination of title records should reveal that there is no reasonable doubt as to whether the seller actually owns the property and whether or not there are encumbrances upon it that were not disclosed in the real estate sales contract.

DISCLAIMER: The foregoing is intended for reference purposes only and not as legal advice.