The Difference Between Insurable and Marketable Title to Real Estate

When it comes to real estate contracts of sale, it’s common to see title referred to as either “marketable” or “insurable” title. The two terms are often used interchangeably but are commonly misunderstood.

Marketable title is defined as title to property that is free from encumbrances or defects that would legally or physically restrict the owner’s use of the property. Examples include outstanding mortgages or comparable liens, restrictive covenants, easements on the property, zoning restriction violations, etc.

Marketable title is also free from any reasonable doubt as to its validity, e.g., variations in the chain of title, variations in the names of the grantors and grantees, outstanding heir issues after an estate conveyed title, and unrecorded leases, to name a few.

So what happens when title is considered unmarketable? You buy title insurance to insure title to the property. How is that different from marketable title?

Insurable title is what a reasonably prudent title insurance company is willing to insure at normal market rates. As a result, title may have defects. The decision to insure a property may differ between title insurance companies which usually depends on whether marketability issues have either been resolved or have been determined that the defects present a low risk to the insurer.

It is important to note that there are some marketability issues that title companies cannot insure over and, these issues, such as easements and building setback lines, are commonly excepted (not covered) from the title policy.

Unmarketable title presents itself quite often and there are usually some form of defects or encumbrances on virtually every property in New York. That said, it is important to obtain as much information about the property as possible such as copies of prior title insurance policies and existing surveys because it assists in addressing potential issues early on.