A title of a seller of real property can either be good or restricted. Every real estate transaction involves a large sum of money. Owing to this factor, buyers refrain from buying real properties that are clouded and have the potential to challenge their ownership in the future.
When the title of the seller of real property is not good or hindered, it is called an Insurable title. It means that there are some legal defects in the chain of the title and the seller technically doesn’t hold the legal rights to sell the property. It could be because of some mortgage loan that was raised against the property in the past. Another reason could be a lien formed on it, as a resulting defect in the repayment of a loan by the seller in the past. However, a willing title insurance company is willing to insure the title on behalf of the buyer at nominal market rates. This means that the title insurance company will provide insurance coverage for any defect or challenge in the title if it so arises in the future.
A seller’s title in the property could either be marketable or insurable. A marketable title is formed when there is no defect in the chain of the ownership of the property. No one other than the seller has any interest in the property and he has the right to put that title for sale in the market. Unless the contract of sale specifically mentions any defect in the chain of ownership, the title to the property is assumed to be marketable.
Every marketable title can be insurable but not every insurable title is marketable.
If a buyer upon knowing the defects in the title still wishes to purchase the property, he shall be required to sign a hold harmless agreement. It states that the buyer was made aware of the defects in the chain of title and he has still bought the property after acquiring such knowledge.
Usually, a title that is insured is known to have defects of only minor nature and the chances are very likely that they would not cause any ownership challenge for the buyer in the future.
One major disadvantage of buying a real property with an insurable title is that the current buyer may not be able to find suitable buyers to resell the property in the future if he ever wishes to.
