Unmarketable/Defective Title

Title Troubles: When Unmarketable or Defective Titles Create Real Estate Headaches!

An unmarketable title, sometimes referred to as defective title means that there is a recorded encumbrance showing up on the records related to the land at issue that most buyers would not purchase without the encumbrance being cured. The term “unmarketable” is somewhat misleading, however, because although there may be a defect in the title, the property can still be sold to a willing buyer. By way of analogy, if one owned a vehicle and the vehicle was missing all four tires and axles, a buyer would not want to buy that vehicle and one could call that vehicle unmarketable. That said, if you find the right buyer, subject to a mechanic or hobbyist, he or she may be willing to purchase that vehicle without the axles and the tires, but at a much-reduced price then if the vehicle was fully functional. An unmarketable title or defective title simply means that the owner will not be able to sell the property that is the subject of that title for full value without first curing the defect in the title.

Unmarketable title and defective title are synonymous. There is a widely held misconception that it is illegal to sell unmarketable or defective title. Much like an owner of a vehicle can sell a vehicle with a salvage title, the owner of land with unmarketable or defective title can sell the land so long as the title defect is disclosed to the buyer before the land is sold. For example, if there is a materialman’s lien recorded against real property for $20,000, the owner of that property can sell the property to a buyer, but the sale would be subject to the lien. In other words, the buyer assumes the risk that the lien will be foreclosed and would have to be paid or the real property would be sold. So long as the seller discloses the existence of the lien it is perfectly legal for the seller to sell the property subject to the lien if the buyer wants to buy it subject to the lien.