There are a variety of reasons that sales of real property do not close, even after common disputes over issues such as price are resolved. One important issue that can prevent the closing of a real property sale is the issue of marketable title. This article will briefly examine marketable title in Texas. If, after reading the article, you have questions regarding marketable title in Austin, Pflugerville, or Round Rock, contact the real estate attorneys at the Law Office of Farren Sheehan.
What is Marketable Title?
Marketable title, also referred to as merchantable title, is a concept implied in every sale of real property in Texas. Therefore, unless explicitly stated otherwise in the sales contract, the seller is responsible to furnish marketable title to the purchaser at the time of closing. Real estate transactions will generally not close if marketable title is not furnished, as a buyer is not usually obligated to accept a title that is not marketable.
Generally speaking, marketable title means that the title to the property is reasonably free from doubts that would affect the market value of the property. Reasonable doubt is generally defined as a doubt which would induce a prudent person to hesitate in purchasing the property. Generally, there are three requirements to show marketable title:
- The seller must own the entire property.
- The title is not subject to liens or encumbrances.
- The state of the title and the existence of encumbrances is subject to any doubt.
Importantly, marketable title does not mean that property is free from every possible doubt or suspicion, and a mere possibility of defect does not render a title unmarketable. If a prudent person with knowledge of all facts and circumstances relevant to the transaction would be willing to accept the title, it is marketable.
Examples of Circumstances that Render a Title Unmarketable
The most obvious circumstance in which a title is not considered marketable is when the seller does not actually own the entire property. Usually, however, the defect that renders a title unmarketable are less glaring. Common circumstances include outstanding contracts, covenants, liens, or mortgages upon which there is a sufficient basis for litigation. As a general rule, anything that would expose the purchaser of the property to a reasonable probability of litigation would render the title unmarketable.
For example, suppose A buys land from B. The contract states that B has marketable title to the land. Shortly after completing the sale, A learns that C has a lien against the property for a loan taken out by B. Therefore, B has not delivered marketable title to A because of the outstanding lien on the property.
Remedies for Failure to Deliver Marketable Title
What happens when a title is not marketable? A seller typically has until the closing date to cure any defect in marketable title. Generally, if the seller is unable to furnish marketable title by the closing date, the purchaser may back out of the sale and receive any payments made for deposit. A purchaser may therefore not rescind the contract until the closing date. If a situation such as the above example occurs, where a buyer learns of a defect in title after the sale, the sale contract will generally provide a remedy including return of the property. In some circumstances, the buyer may also seek damages for breach of contract or specific performance of the sale with a reduced price. Importantly, recession of the sales contract due to a defect in title is at the discretion of the buyer, so a seller may not rescind a contract based on defective title if the buyer still wishes to purchase.
Contact Sheehan Law, PLLC Today
If you have further questions about marketable title, or any other aspect of real estate law in Texas, please do not hesitate to contact Sheehan Law, PLLC. Our attorneys have the experience and knowledge necessary to help guide you through whatever real estate legal matters you may be facing, keeping your best interests at the forefront of our practice. Contact our offices today to schedule your consultation.