14A — October 16 - 29, 2015 — Financial Digest — M id A tlantic
Real Estate Journal
www.marejournal.com
T itle /I nsurance By R. Michael Smith, Conestoga Title Insurance Co. Marketable versus Insurable Title
I n contract negotiations, an often neglected provi- sion is the quality of title
the property at its fair value. Many subsequent decisions have quoted this passage but have usually relied upon one of the clauses to support the finding of marketability or lack thereof. In other words, it would appear that a title is marketable if it meets one of the Madbeth tests, not all of them. That suggests that a marketable title may be less than a perfect condition which is an impression favorably drawn from cases in other jurisdictions as well. Madbeth addresses a couple of other points about market- able title that are important to remember. First, in Vir- ginia, marketability of title is a question of law, not of fact. Other jurisdictions have found marketability to be a fact issue. See, “Title Insur- ance Coverage for Unmar- ketability of the Title,” John C. Murray, PLI (Commercial Real Estate Financing 2006: What Borrowers & Lenders Need to KnowNow), January- March 2006. If it is an issue for the court, expert opinion on title would not be admis- sible at trial. The second matter raised by Madbeth is that, upon identification of a defect or encumbrance establishing a potentially unmarketable title, the burden shifts to the proponent of the title to estab- lish that it is marketable or to remove the defect. In other words, it seems that it takes something less than a prima facie showing of unmarket- ability to shift the burden of proof to the proponent of marketability. Given that the law undoubtedly assumes good title in a record holder of same, this seems to be an opening for the very chaos that Madbeth’s definition above would seek to avoid. As mentioned above, the 2006 ALTA policies insure against loss or damage result- ing from an unmarketable title. “Unmarketable title” is defined in the Conditions as a title affected by an al- leged or apparent matter that would permit a prospective purchaser or lessee of the Title or lender on the Title or a prospective purchaser of the Insured Mortgage to be released from the obligation to purchase, lease, or lend if there is a contractual condi- tion requiring the delivery continued on page 15A
conveyed, but few titles are perfect, which is what a truly marketable title requires. The availability of title insurance to cover the acceptable title defects is one answer to that problem, but it has to be borne in mind that an insurable title is not a perfect one. Justice Potter Stewart ad- mitted that a definition of ob- scenity might not be possible but that he knew it when he saw it. A definition of market- able title might be similarly difficult but the courts seem to know it when they see it. Given that most real estate
purchase contracts promise delivery of marketable title, it would seem that its definition is a matter of common un- derstanding. The converse is probably closer to an accurate statement. The title industry has not assisted in defining marketable title even though its policy forms have included unmarketability of the title as one of the insuring provisions. A comprehensive statement about marketable title ap- pears in Madbeth v. Weade, 204 Va. 199, 129 S.E.2d 667, 669-670 (1963): A marketable title is one
which is free from liens or encumbrances; one which dis- closes no serious defects and is dependent for its validity upon no doubtful questions of law or fact; one which will not expose the purchaser to the hazard of litigation or embarrass him in the peaceable enjoy- ment of the land; one which a reasonably well-informed and prudent person, acting upon business principles and with full knowledge of the facts and their legal significance, would be willing to accept, with the assurance that he, in turn, could sell or mortgage
to the proper- ty to be con- veyed. It may be seen as a mat t er f or the lawyers, but whether or no t the f i n a l l a n - guage calls for “good and
marketable” or “marketable and insurable” title is sig- nificant. Traditionally, mar- ketable title is what is to be R. Michael Smith
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CONSUMERS: Conestoga only appoints the industry’s highest quality agents and attorneys that will meet or exceed industry standards. In Pennsylvania Conestoga offers more competitive pricing than other underwriters for transactions over 1 million. Conestoga’s appointed agents and attorneys are committed to providing their clients with exceptional service. LENDERS: Conestoga has been awarded with a 2015 Financial Stability Rating ® of “A Prime” by Demotech, Inc., the title industry’s leading independent analyst. Conestoga does not compete for business with title agencies by opening branch offices. Conestoga is looking to appoint new independent title agents, affiliated title agencies, law firms and attorneys. If you’re looking to become an appointed agent or attorney for Conestoga give John M. Nikolaus, ALTP, President, Conestoga Title Insurance Co., a call at 1-800-272-3570 or email John at jnikolaus@contitle.com www.contitle.com Conestoga Title Insurance Co. 137 E. King St Lancaster Pa 17602 TITLE AGENCIES & ATTORNEYS: Conestoga provides exceptional underwriter support and service.
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