Title To Be Conveyed

Is a buyer of real estate justified in refusing to complete the purchase because she is dissatisfied with the quality of the title the seller proposes to convey?

1.    Buyer may discover the quality of the seller’s title by:

•    written attorney opinion letter
•    title report from title insurance company: issue a policy insuring that the land’s title is as stated in the report, and thus to be liable to indemnify the insured id she or he suffers a loss due to any undisclosed title defect.

2.    Laba v. Carey (NY 1971): Where a purchaser agrees to take title subject to easements and restrictive covenants of record which are not violated, that title is what the seller is obligated to tender.  Here the easements were not violated and these exceptions to title were contemplated to be acceptable by the parties, and so, the seller fully performed his agreement with the buyer.

3.    Different Types of Title

a.    Insurable Title: Subject to exceptions contemplated by the parties.
b.    Marketable Title: readily subject to resale and free from reasonable doubt
?    Texas: not clouded by lien, mortgage, etc. giving rise to litigation – free from reasonable doubt.
?    What kinds of defects do affect marketable title?  Claims of adverse possession, encumbrances, lines, easements, access to property, encroachments.  Utility lines, electric lines, hazardous waste existence do not affect marketability.
?    T X LAW: Implied covenant of marketable title is limited to indefeasible title (title that cannot be defeated).  Indefeasible title is a lesser standard than “not clouded by…”  One cannot get insurance for marketable title, so sellers generally do not warrant for this.
1.    Encumbrances can violate the implied covenant unless buyer expressly provides it will take subject to them.
2.    Visible or beneficial encumbrances do not affect the marketability of title.
3.    Complete lack of access to a public road can affect marketability of title.
[Pages 78-80]

–    Buyer must give notice of defects in title and then seller has opportunity to cure.
–    The vendor need not have marketable title until the time of closing as a general rule.
–    “Merger of title covenants” states that a buyer with objections to title must raise them prior to accepting delivery of the deed (will not operate if fraud or mutual mistake).
–    The covenant that title will be marketable says nothing about the nature of the deed to be tendered at closing…can be a general warranty deed, a special warranty deed, or a quitclaim deed (with no warranties at all).
–    Due-on-sale clauses allow lenders to force the new buyer to pay the seller’s loan even though the title was marketable because the buyer agreed to buy the property subject to the “defect” of the existing mortgage.