Insurable Title vs Marketable Title

Danger in Purchasing Foreclosure Properties
Insurable Title does not Necessarily Mean Marketable Title

General Rule:  All marketable title is insurable, however, not all insurable title is marketable.

What is the difference? 

Insurable title may come with a host of defects.  However, despite these defects, a title insurance underwriter weighs the risks involved and allows the title agent to issue a title policy even though there may be blemishes and potential problems down the road.  Ironically, should the value of the property increase dramatically, the buyer is only protected to the extent of the original purchase price. 

In contrast, marketable title is a title that is clean, has no defects that will come up again in a future title examination when the property owner attempts to obtain financing or more importantly tries to sell the property.  Accepting insurable title could result in problems which need to be addressed at a later date resulting in both time and money.

Title Insurance Companies may recognize a problem when you go to sell the property.  Their first solution is to ignore the problem and reinsure over it again whereby they actually profit from their previous oversight.  Unfortunately, many buyer's, if properly represented will not accept this proposal.

Why is this important?

Standard A - Title of the standard form contracts in Collier County, Florida provides "Title to the property shall be good and marketable with legal access, subject only to the following exceptions..."

On more than one occasion in the past year, I have had frustrated sellers lose their deal because the property was not marketable.  Title companies often gamble that the issue will not come up again or will be overlooked.  When problems do come up they are more often difficult to resolve requiring corrective documents in the chain of title.

What does this have to do with foreclosures?

Everything!  The problem is that every purchaser who is looking for a good deal buying a foreclosure property is required to sign a contract that states to the effect "The buyer agrees to accept at closing "insurable title" provided buy the lender's closing title company."  Talk about the fox guarding the chicken hen - WOW!

Unfortunately a great number of foreclosures are riddled with title problems.  This past year alone I have encountered countless problems which required the lender to go back and either re-foreclose the property or obtain the necessary releases or corrective documents.  In one instance a title company overlooked a multi-million dollar lien in the form of a judgment which would have remained with the property following the transfer.

As a result, I cannot emphasize the need to have an independent title exam performed for anyone who is wiling to accept the lender's title policy which often has countless exclusions for liens, etc. leading buyer's to have a false sense of security.

Another major issue I encounter when dealing with title companies involved in foreclosure is that many are run as a sweat shop located outside of the state. Not only are many of these companies unfamiliar with many of the nuances of Florida Law, a few of them are either incompetent or down right thieves!

I cannot begin to tell you of the excessive mistakes and charges I have discovered and corrected on behalf of buyers.  Ironically, I have never once seen a mistake on a closing statement benefit a buyer.  Common examples are shifting closing expenses to the buyer which were not a part of the contract such as the seller's documentary transfer tax, charging unconscionable fees for title examination, title searches and settlement fees which were not part of the contract, shifting past due assessments and other seller obligations onto the buyer.

So often buyer's haggle over the purchase price and overlook some of the biggest expenses of sale on closing statements.  Many times seller's dangle the carrot of even offering to pay for the cost of the title insurance provided you close through the seller's closing agent.  In essence, a number of times there may be hidden defects or costs involved.  Remember the old adage "if it sounds to good to be true.....

At the end of the day, protect yourself, protect your buyer and be sure to engage a qualified Real Estate Attorney to perform an independent title examination any time the seller offers to provide title insurance because insurable title does not necessarily mean marketable title.

If you would like assistance or have a question on this or any other real estate related matter please do not hesitate to contact me.

LAW OFFICES OF RONALD S. WEBSTER
985 N. COLLIER BLVD
MARCO ISLAND, FL  34145
239-394-8999 PHONE
239-394-3511 FAX