Insurable Title VS Marketable Title

Insurable Title VS Marketable Title

Insurable Title VS Marketable Title

From Market Street Title

When you buy a home, especially a bank owned property, what kind of title are you getting “Insurable Title” or “Marketable Title” to the property? Is there really a difference and if so why should we care? Let’s start by defining those terms:

Insurable Title – Title to the property may have issues such as unreleased liens, this can include deeds of trust and other money related matters. Even if those liens have been paid off, the public records may not reflect that since a Certificate of Satisfaction or a Release has never been recorded. Other matters may encumber title as well, and those are what I call “Title Baggage”. The lender will find a Title Insurance company at that point who is willing to assume the risk and insure the transaction without cleaning up the baggage. Buyer is then acquiring “Insurable Title”.

Marketable Title – Title to the property may have baggage but the settlement agent handling the transaction insists on clearing up those messes. For example, we may track down a prior lender on a loan that has been paid off but no one bothered to record the release in public records, we will obtain that release and record it. Of course there are times when tracking down a lender is not possible. For example, a loan made by a private individual who has since “disappeared”, retired on an island somewhere and cannot be found or has long departed our planet.

So why should a buyer care? Once the buyer acquires “Insurable Title” and say he/she wants to refinance a year or two later, guess what is still on title? You’ve got it, the “baggage” we talked about earlier. This can cause delays and in some cases clients’ interest rate lock expires since cleaning up the mess, known as “Title Curative Action” can take a while. Of course the borrower can always go back to the same company that insured it to begin with but that can also be challenging on many different levels.

Of course, when buyer goes to sell at some point in the future and finds out  the “baggage” is still there, delayed settlements can be frustrating and in some cases costly.

Bank-Owned (REO) properties can be a great deal for buyers if they don’t mind waiting for this type of sale to complete, which can take 6 months or more. You put in an offer on an REO property and eventually the lender comes back with an addendum that includes the “requirement” that the buyer must use the seller’s title company. Many buyers and real estate agents do not challenge that “requirement” for fear that the lender will simply not ratify the contract.  A legitimate concern, of course, but keep in mind the importance of the type of title you will be getting. Besides your real estate agent, who can not give legal advice, someone should be looking out for you.

You should always choose your Title Company. Even if the bank insists on using their Title Company, it is usually a good idea to have your own settlement agent review the title, address curative matters, and settle the transaction. So what about the “free” owner’s policy the REO lender entices the buyer with? Experience has shown us that in a lot of cases when you compare a preliminary HUD1 from the REO lender’s preferred settlement company vs. a settlement company that’s going to make every attempt to clean-up the “baggage”, the cost is nearly the same and not to mention that the buyer will acquire “Marketable Title” to the property.

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Although we believe that this information is accurate as it is compiled from professional sources, please verify this information on your own before relying on it as your only source of knowledge to base any decisions on.