Real Estate Journal — Financial Digest — October 16 - 29, 2015 — 15A
www.marejournal.com
M id A tlantic
T itle /I nsurance
By R. Michael Smith, Conestoga Title Insurance Co. Marketable versus Insurable Title (cont.)
The final advice as to whether or not marketable or insurable title is preferable for any party to the contract is a legal one. Certainly, though, the quality of the title is an important consideration for all during negotiations and, with well-crafted contingen- cies, may be a way out of a bad deal or the means to collect damages from a buyer grasp- ing at straws to avoid perfor- mance. Advice of counsel is necessary; knowledge of the title in advance by the seller or provision for a reasonable period for due diligence as to
of marketable title. This lan- guage would appear to read as a shorthand version of the Madbeth test. An untested portion of the definition, how- ever, is what happens to in- surance protection for a seller who contracts to convey “free and clear of all liens” as this, would appear to be greater than a marketable title. Commercial real estate contracts often offer to convey title that is marketable and insurable. “Insurable title” in this context, in the common understanding of commercial counsel and lenders, probably means those title defects or marketability issues that a title insurer would “insure against” under normal policy provisions or special cover- ages but without additional premium. Sometimes the title to be conveyed is called marketable subject only to the list of permitted excep- tions which is usually the title insurer’s schedule of special title exceptions presented to the purchaser during the pur- chaser’s due diligence period. Cases that discuss insurable title, however, are even rarer than those on marketability. At common law, any defect in or burden upon the title would make it technically unmarketable. The modern approach seems to be an un- marketable title is one which has such a serious defect that a reasonable person with knowledge of the defect would not purchase the property in the exercise of good business judgment. Furthermore, such purchase would expose the purchaser to the hazard of liti- gation or the inability to resell or mortgage the property. For example, ordinary easements for utilities, although they im- pact the title adversely, do not support an unmarketability of title claim because such ease- ments are normally accepted in the sale of real estate. Also, mortgage or judgment liens that are to be satisfied out of the seller’s purchase money do not permit the purchaser to reject the title. As a title underwriting principle, however, a known marketability problem should be disclosed to the purchas- er even if such is insurable so that the purchaser may choose to accept insurance over the problem. Be aware that a contract that promises continued from page 14A
“insurable title” in order to avoid the seller’s obligation to deliver one that is market- able may be seeking to compel the purchaser to accept an unmarketable title if a title underwriter will “insure over” the defect. Note that this title insur- ance coverage is limited to unmarketable title and in no way covers land that is not saleable due to, for example, environmental damage to the land which makes it only nominally valuable. Such land may be “unmarketable” but its title may be clear.
the title for the buyer is rec- ommended. R. Michael Smith is Un- derwriting Counsel for Conestoga Title Insurance Co. He has been a member of the Virginia State Bar since 1973 after graduat- ing from the University of Virginia with a B.A. with distinction in History and obtaining his J.D. from the University of Virginia School of Law. He spent most of the last thirty years in title insurance and finan- cial services employment serving as underwriting
counsel for title insurers in Fairfax, Virginia, before moving to Lancaster, Penn- sylvania. In 2014, he was appointed as an Advisor to the Title Forms Commit- tee of the American Land Title Association and he is a member of the Real Property/Trust & Estates Section of the American Bar Association. While Mr. Smith’s focus in title insur- ance has been in Virginia, he also has experience with underwriting and agency operations in the Mid-At- lantic and Midwest. n
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