Real estate contracts - Marketability of title

Learning Outcomes

This article explains marketability of title in real estate contracts, including:

• How the implied covenant of marketable title arises in land sale contracts, how it interacts with different deed types and “as is” clauses, and how to spot it quickly in MBE questions.
• Which defects and encumbrances make title unmarketable—such as adverse possession, undisclosed easements, restrictive covenants, options, encroachments, and zoning violations—and which common items (like ordinary utility easements or mere zoning restrictions) do not.
• How timing rules, equitable conversion, installment land contracts, and the doctrine of merger determine when marketable title must be provided and when contract rights are extinguished.
• What steps buyers must take to examine title, give notice, and allow an opportunity to cure, and when a defect is considered incurable for exam purposes.
• What remedies are available to the buyer and seller when marketable title cannot be delivered, including rescission, damages, and specific performance with abatement, and how courts treat good‑faith but unable‑to‑convey sellers.
• How to integrate marketability analysis with recording act principles, risk‑of‑loss issues, and fact‑pattern clues so you can choose between similar answer choices on the MBE.

MBE Syllabus

For the MBE, you are required to understand marketability of title in land sale contracts, with a focus on the following syllabus points:

• The implied covenant of marketable title in every standard land sale contract.
• The distinction between marketable title and perfect title.
• Defects that render title unmarketable: outstanding interests, adverse possession, encumbrances, encroachments, and zoning violations.
• The effect of mortgages, liens, easements, restrictive covenants, and purchase options on marketability.
• The timing of the marketability obligation (equitable conversion, closing) and the doctrine of merger.
• Marketable title in installment land contracts.
• Buyer and seller remedies: notice and opportunity to cure, rescission, damages, and specific performance with abatement.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is most likely to render title unmarketable?
   1. A visible utility easement.
   2. An outstanding mortgage that will be paid off at closing.
   3. Title acquired solely by adverse possession.
   4. A minor error in the property’s legal description.
2. If a seller cannot deliver marketable title at closing, what is the buyer’s primary remedy?
   1. Damages only.
   2. Rescission or specific performance with abatement.
   3. Forfeiture of the deposit.
   4. None; the buyer must proceed with the purchase.
3. When must a seller provide marketable title under a standard land sale contract?
   1. At the time the contract is signed.
   2. At the time of closing.
   3. At the time the buyer takes possession.
   4. At the time the deed is recorded.

Introduction

In every contract for the sale of real property, unless expressly stated otherwise, there is an implied promise that the seller will deliver marketable title at closing. This promise exists whether or not the contract mentions “marketable title,” and it applies regardless of the type of deed the seller will deliver (general warranty, special warranty, or quitclaim).

Key Term: Marketable Title
Title to real property that is free from reasonable doubt in law or fact, and does not expose the buyer to a significant risk of litigation or loss, so that a reasonable buyer would be willing to accept it.

“Marketable” does not mean perfect title. Small, technical defects that pose no real risk of litigation or loss do not matter. For example, a minor, easily correctable typo in a metes-and-bounds description that everyone understands in context generally does not destroy marketability. The MBE focuses on whether a reasonable purchaser—planning to resell or mortgage the property—would view the title as sufficiently secure.

Two related but distinct concepts often appear together in exam questions:

• Record title: what the public land records show.
• Marketable title: whether a reasonable buyer would accept the title given all facts (including off‑record defects the buyer actually knows about).

A seller can have record title that is unmarketable (for example, where a neighbor’s building encroaches onto the land), and sometimes nonrecord defects the buyer does not know about may also render title unmarketable.

On the exam, always separate these questions:

• “Who would win a recording act contest between two claimants?” (record title issue)
• “Regardless of priority, would a reasonable buyer feel secure taking this title?” (marketability issue)

It is entirely possible that the seller has superior record title under the jurisdiction’s recording act, yet the buyer can still object that the title is unmarketable because there is a visible encroachment, an unresolved easement dispute, or an outstanding future interest that could generate litigation.

The Implied Covenant of Marketable Title

Every land sale contract includes an implied covenant that the seller will provide marketable title at closing, even if the contract is silent on the issue. This covenant is implied in the contract, not in the deed, and it is separate from any express warranties in the deed.

Key Term: Implied Covenant of Marketable Title
An unwritten promise in every standard real estate contract that the seller will deliver marketable title at closing, unless the buyer clearly and expressly waives this requirement.

Key points:

• The covenant protects the buyer; the seller cannot rely on marketability problems to avoid the deal. If the seller’s own title is questionable, that is the seller’s problem, not a basis for the seller to escape.
• The buyer may waive marketability, but waiver must be clear—typically by agreeing in advance to take the property “subject to” specified defects (for example, “subject to all matters of record, including the existing utility easement and recorded restrictive covenants”).
• The fact that the contract calls for a quitclaim deed does not eliminate the seller’s obligation to deliver marketable title, unless the contract expressly disclaims that obligation.

Key Term: Quitclaim Deed
A deed that conveys whatever interest the grantor has in the property without any covenants of title; it does not, by itself, waive the contract’s implied covenant of marketable title.

On the MBE, a frequent trap is language such as “Seller will convey by quitclaim deed.” Many students wrongly conclude that the buyer takes “at their own risk.” That is wrong. The deed type affects the post‑closing warranties, not the seller’s contractual duty to deliver marketable title at closing.

Similarly, another common trap is the presence of an “as is” clause. “As is” language typically disclaims warranties about the physical condition of the improvements (for example, the roof or plumbing), not about title. Unless the contract clearly states otherwise, an “as is” clause does not waive the marketable title requirement.

In practice, many modern form contracts spell out a list of permitted exceptions to marketability (such as “standard utility easements serving the property” or “subdivision restrictions of record”). On the exam, treat any such listed items as defects the buyer has waived with respect to marketable title.

Marketable Title vs Equitable Conversion

From contract signing until closing, the buyer holds an equitable interest in the property and the seller holds legal title.

Key Term: Equitable Conversion
The doctrine under which, once a land sale contract is signed, the buyer is treated as the equitable owner of the property and the seller as holding legal title in trust until closing.

Equitable conversion has two main exam consequences:

• It allocates risk of loss if the property is damaged between contract and closing.
• It can affect who gets what if either party dies before closing (seller’s heirs get the purchase money, buyer’s heirs get the land).

Under the traditional rule:

• If the property is destroyed without fault of either party after contract but before closing, the buyer bears the risk and must still pay the price (absent contrary contract language or a modern statute shifting the risk).
• Some jurisdictions have adopted the Uniform Vendor and Purchaser Risk Act, under which the seller bears the risk until legal title or possession passes to the buyer.

For marketability:

• The duty to deliver marketable title is measured at closing, not when the contract is signed, and it concerns defects in title, not physical damage to the structures.
• A fire that burns the house to the ground does not, by itself, make title unmarketable; it may give the buyer a separate contract or risk‑of‑loss argument, but the title to the land is still good.

So on the MBE, when you see mid‑contract physical destruction, separate your analysis:

• “Who bears the risk of loss?” → equitable conversion rules or statutory modification.
• “Is the title marketable?” → usually still yes, unless the destruction reveals a title problem (for example, that a prior owner still holds a reversionary interest).

What Makes Title Unmarketable

A title is unmarketable if it exposes the buyer to a reasonable risk of litigation or loss. The classic exam inquiry is: “Would a reasonable purchaser, planning to resell or mortgage the property, object to this defect?”

Common defects (all highly testable):

• Outstanding interests held by third parties (for example, future interests, life estates, claims by unknown heirs).
• Title acquired solely by adverse possession, unless confirmed by a judgment quieting title.
• Existing encumbrances—mortgages, liens, restrictive covenants, purchase options, or easements—unless the buyer has agreed to accept them.
• Significant encroachments or boundary disputes.
• Existing zoning violations or unlawful uses of the land.

Key Term: Encumbrance
A non‑possessory right or claim—such as a mortgage, lien, easement, restrictive covenant, or option—that burdens title to real property and may affect its marketability.

Key Term: Adverse Possession
A method of acquiring title to land by continuous, open, notorious, exclusive, actual, and hostile possession for the statutory period. Unless confirmed by a quiet title judgment, such title is generally treated as unmarketable on the MBE.

Key Term: Zoning Violation
A present use or structure that violates applicable zoning or land‑use regulations (for example, a house built inside a required setback), rendering title unmarketable even though the regulations themselves are valid.

Note the exam focus: The question is not “Is the title valid as a matter of pure property doctrine?” but “Is the title sufficiently clear that a reasonable buyer would not fear lawsuits or loss of value?” That is a more practical, risk‑based standard.

Outstanding Interests and Future Interests

Title is unmarketable if someone other than the seller (or buyer) holds an interest that could limit the buyer’s fee simple. Examples:

• Someone else holds a life estate, with remainder to another (for example, “to A for life, then to B”).
• Unborn or unascertained remainder beneficiaries (for example, “to A for life, then to A’s children,” when A could still have more children).
• Old possibilities of reverter or rights of entry still held by the grantor’s successors, where the stated condition has been breached.
• Certain older dower or curtesy rights still recognized under local law. If the spouse’s interest has not been released, that outstanding spousal interest clouds title.

Because these parties could later assert ownership claims, a buyer taking subject to them faces a reasonable risk of litigation.

Key Term: Quiet Title Action
A lawsuit brought to obtain a judicial determination that the plaintiff’s title is valid and to eliminate adverse claims, thereby curing many title defects (including adverse possession and some old future interests).

On the exam, if a seller’s title depends on extinguishing an old reverter or right of entry, look for facts indicating either a quiet title judgment or a modern statute that cuts off very old interests. Absent such facts, assume the future interest remains and can impair marketability.

Key Term: Marketable Title Act
A statute that, after a specified number of years (often 20–40), extinguishes certain old interests and claims not re‑recorded within that period, in order to improve marketability of title.

Marketable title acts are not heavily tested, but they explain why some very old possibilities of reverter or rights of entry may no longer be enforceable—and thus no longer impair title. Unless the fact pattern tells you such a statute applies, treat ancient possibilities of reverter and rights of entry as still valid.

Title by Adverse Possession

MBE default rule: Title held solely by adverse possession is unmarketable unless confirmed by a court.

Some modern jurisdictions treat long‑standing adverse possession as marketable, but the bar exam expects you to assume the conservative rule: adverse possession alone makes title unmarketable unless a quiet title judgment has been obtained.

This can be subtle in exam questions:

• If the seller is the record owner but a neighbor is currently occupying a strip by adverse possession, the seller’s title to that strip is unmarketable because of the neighbor’s outstanding claim.
• If the seller is the adverse possessor and has never quieted title, the entire title is unmarketable.
• If the seller acquired part of the parcel by deed and part by adverse possession, marketability is impaired at least as to the adversely possessed portion.

Sometimes the bar writers combine this with survey issues: a survey reveals that a fence and long‑used driveway lie partly on the neighbor’s land. The neighbor may have an adverse possession claim, or the seller may. Either way, until a court fixes the boundary, the title is too uncertain to be marketable.

Encumbrances: Mortgages, Liens, Easements, and Restrictive Covenants

Most encumbrances make title unmarketable unless:

• They will be removed at or before closing from the sale proceeds, or
• The buyer has expressly agreed to take subject to them.

Mortgages and liens make title unmarketable if they will remain after closing. But if the purchase price is enough to pay them off, and they will be released at closing, they do not render title unmarketable.

Easements and restrictive covenants require closer attention.

Key Term: Easement
A non‑possessory right to use another’s land (for example, a right of way), which is usually an encumbrance and may affect marketability.

Key Term: Restrictive Covenant
A promise regarding how land may be used (for example, “residential use only”), typically running with the land, and treated as an encumbrance for purposes of marketability.

Key exam distinctions:

• A beneficial, visible, or known easement—like a standard utility easement servicing the property—usually does not render title unmarketable. A reasonable buyer expects these.
• A burdensome easement—such as a private right‑of‑way for a neighbor’s trucks across the driveway—does render title unmarketable unless expressly accepted.
• Recorded restrictive covenants (subdivision restrictions, building limitations) usually render title unmarketable unless the buyer has agreed to them in the contract.
• Options to purchase and rights of first refusal clearly burden resale and are classic marketability defects.
• Long‑term leases on the property can also be encumbrances; unless the buyer has agreed to take subject to the tenant’s leasehold, a lease that extends beyond closing typically makes title unmarketable.

Key Term: Option to Purchase
A contractual right held by a third party to buy the property on specified terms, exercisable within a stated period. It burdens title and generally makes title unmarketable unless the buyer accepts it.

Key Term: Right of First Refusal
A contractual right held by a third party to match any offer the owner is willing to accept, before the owner sells to someone else. It restricts resale and generally renders title unmarketable unless waived or accepted.

The exam often tests whether a visible, beneficial easement (utility lines, sidewalk) is a defect. Unless the facts indicate otherwise, such easements do not make title unmarketable. By contrast, undisclosed, burdensome easements (for example, a neighbor’s driveway across the lot) do.

Be careful to distinguish use restrictions imposed by private covenants (encumbrances) from use restrictions imposed by zoning ordinances (not encumbrances in themselves). The former typically impair marketability; the latter usually do not, unless already violated.

Encroachments and Boundary Problems

Material encroachments—like a building that crosses the lot line onto a neighbor’s land—render title unmarketable because they create obvious litigation risk. Slight encroachments (for example, eaves overhanging a few inches) may be treated as de minimis and not fatal, especially if the neighbor has indicated no intention to sue.

On the MBE:

• Substantial encroachments (part of a building over the line, a driveway on neighbor’s land) → unmarketable.
• Minimal encroachments (a fence off by a few inches in a rural area, or eaves overhanging slightly with no complaint) → often treated as acceptable.

If the facts say the encroachment has continued long enough that the encroaching owner has a valid adverse possession claim, you must be careful:

• As a matter of real‑world law, that might mean the boundary has effectively moved and the seller no longer owns the strip.
• For marketability, the key is whether the title presented to the buyer corresponds with reality. If the seller’s deed description still conflicts with the actual boundary, the buyer faces potential litigation and the title is unmarketable unless the seller has quieted title.

Exam writers often combine this with remedies: a seller whose house slightly encroaches may be able to convey with specific performance and a price abatement, while a seller whose main building is largely across the line will usually trigger rescission rights for the buyer.

Zoning Restrictions vs Zoning Violations

Zoning rules themselves are not encumbrances and do not make title unmarketable. However, an existing violation does.

• “R‑1 residential zoning applies” → title is marketable.
• “House is built closer to the side lot line than zoning allows” → title is unmarketable.

The violation must exist at the time of closing. A mere risk that the buyer might choose to violate zoning in the future does not affect marketability.

Also distinguish zoning regulations from building codes or housing codes. A structure that violates a building code (for example, missing fire doors or inadequate wiring) is physically defective, but unless an enforcement order has been issued or the violation directly clouds title, that is usually not treated as a title defect for marketability purposes. It may, however, support a separate misrepresentation or statutory disclosure claim.

Physical Condition vs Marketable Title

Another exam trap is confusing physical defects in the property with defects in title.

Examples of physical defects that ordinarily do not make title unmarketable:

• Termite damage.
• A leaky roof.
• Cracked structural support.
• Old plumbing or wiring not up to current codes, where no enforcement action has yet been taken.

Unless the seller has expressly warranted these conditions, such defects go to habitability or breach of other promises, not to marketability of title. The buyer’s rights in that situation are based on misrepresentation, failure to disclose latent defects, or express contractual warranties—not on the implied covenant of marketable title.

In many states, the seller has a separate duty to disclose latent material defects that are not readily observable and that significantly affect value. Breach of that duty can lead to rescission or damages, but it is conceptually separate from the marketable title obligation. On the MBE, if the problem described has nothing to do with who owns the property or what non‑possessory rights burden it, it is usually not a marketable title problem.

When Must Title Be Marketable

The seller must provide marketable title at closing, not at the time of contract.

• The buyer cannot refuse to sign the contract merely because title is presently unmarketable if the seller can cure before closing.
• The seller has until the date set for closing (or a reasonable time thereafter if time is not of the essence) to remove defects.

Key Term: Installment Land Contract
A contract under which the buyer pays the purchase price in installments over time, and the seller agrees to deliver the deed (and marketable title) only after all payments are made.

In an installment land contract, the seller’s obligation is to deliver marketable title when the deed is due—typically after the buyer’s last payment. The buyer cannot stop paying mid‑contract simply because the seller’s title is currently unmarketable, unless it is clear the seller will be unable to cure by the time performance is due.

In fact patterns involving long‑term contracts:

• Ask when the seller promised to deliver the deed (often at the end of the payment period).
• Measure marketability at that time, not at intermediate points.
• Consider whether there is evidence the seller cannot possibly cure by the deed‑delivery date (for example, ongoing litigation that will clearly extend beyond that date).

The Doctrine of Merger

The implied covenant of marketable title exists in the contract, not the deed. At closing:

Key Term: Doctrine of Merger
The principle that, at closing, the land sale contract merges into the deed; thereafter, the buyer’s rights regarding title are governed by the deed, and the implied covenant of marketable title is extinguished.

Consequences:

• After closing and delivery of the deed, the buyer cannot sue on the contract for unmarketable title.
• The buyer’s post‑closing remedies depend on the deed’s covenants of title (in a warranty deed) or on theories like fraud or misrepresentation.
• Collateral promises not related to title (for example, seller’s promise to repair a roof) often survive merger and remain enforceable.

This makes timing important on the MBE: if the defect is discovered after closing, you must analyze deed covenants, not the implied covenant of marketable title. Many questions hinge on whether the buyer discovered the defect before or after accepting the deed.

Once merger occurs:

• Present covenants in a general warranty deed (seisin, right to convey, against encumbrances) may give immediate causes of action if breached.
• Future covenants (quiet enjoyment, warranty, further assurances) may be breached only when the buyer is actually disturbed in possession.

If the contract promised “marketable title” but the deed is a quitclaim deed with no covenants, and the buyer closes and later discovers a defect, the buyer’s contract‑based marketability argument is gone. The buyer is stuck with whatever rights the deed itself gives (in the case of a quitclaim, typically none).

Type of Deed and Marketability

Although the implied covenant applies regardless of deed type, deed covenants matter once merger occurs:

• General warranty deed: seller warrants against all defects in title, whenever arising, subject to listed exceptions.
• Special warranty deed: seller warrants only against defects arising by, through, or under the seller.
• Quitclaim deed: seller makes no title warranties at all.

On the MBE:

• Before closing: ask “Is the title marketable?” and apply the implied covenant.
• After closing: ask “What covenants, if any, are in this deed?” Then consider whether the particular defect breaches one of those covenants.

The fact that the contract calls for a quitclaim deed has no effect on the existence of the implied covenant of marketable title before closing. It only tells you that after merger, the buyer will be relying on contract law (if still available) or tort theories, not deed covenants.

Recording Acts and Marketable Title

Recording issues often underlie marketability problems:

• An unrecorded deed or mortgage held by a third party is a potential marketability defect because it creates a risk of litigation, unless the buyer, as a bona fide purchaser for value without notice, would prevail under the jurisdiction’s recording act.
• If a prior claim would clearly lose to the buyer under the recording statute (for example, a “wild deed” outside the chain of title or an earlier deed recorded too late), that prior claim does not make title unmarketable, because it is legally ineffective against the buyer.

The exam sometimes expects you to combine recording act analysis with marketability:

• First ask: “Would this third party have any enforceable claim against the buyer under the recording statute?”
• If the answer is no, there is no reasonable risk of litigation, and the third party’s claim does not affect marketability.
• If the answer is yes or uncertain, the potential for litigation itself may make title unmarketable.

Example applications:

• A prior deed recorded too late and outside the chain of title (a “wild deed”) is not constructive notice; a buyer who records properly later will prevail, and the earlier deed does not render title unmarketable.
• A prior deed recorded correctly from a common grantor before the seller’s deed was recorded is in the chain of title; a buyer is on record notice of it, and unresolved conflicts will typically make title unmarketable.
• A prior unrecorded easement can be a marketability problem if facts suggest the easement holder could enforce it against the buyer (for example, the buyer had actual or inquiry notice through visible use of the easement).

Notice, Waiver, and Opportunity to Cure

Before treating the seller as in breach, the buyer must:

• Examine title (usually via a title report or abstract).
• Give the seller notice of the specific defects and a reasonable time to cure, even if that requires extending the closing date.

If the seller can cure by closing (or within a reasonable extension), the buyer must go through with the purchase. If cure is impossible or the seller fails to act, the buyer may pursue remedies.

Common exam variations:

• The contract sets a closing date but does not make time of the essence. The buyer discovers a curable defect a few days before closing and immediately demands rescission. The seller can cure within a week. The buyer must generally allow a reasonable extension for cure.
• The defect can be cured only by lengthy litigation (for example, a quiet title action that would take years). If it is clear the seller cannot cure in time, the buyer may treat the contract as repudiated and seek rescission or damages.

A buyer who refuses to close without giving notice and an opportunity to cure may be treated as the party in breach.

Waiver:

• A buyer may expressly waive particular defects (for example, by agreeing in writing to take subject to a specified easement).
• Conduct may also amount to waiver: if the buyer knows of a defect and proceeds to closing without objection, the buyer may be deemed to have waived it—especially once merger occurs.
• However, waiver is typically defect‑specific; waiving one known encumbrance does not necessarily waive all defects.

Remedies for Unmarketable Title

If the seller cannot deliver marketable title at the required time, and the buyer has not waived the defects, the buyer has several options.

Key Term: Specific Performance with Abatement
An equitable remedy under which the buyer is compelled to complete the purchase, but the price is reduced (abated) to reflect a title defect or partial failure of performance.

Key Term: Quiet Title Action
(repeated here for context)
A lawsuit used to resolve adverse claims to title; sometimes an appropriate remedy the buyer can demand as part of specific performance.

Buyer’s Remedies

Typical remedies include:

• Rescission and Restitution:

  • Cancel the contract.
  • Recover the deposit and, often, reasonable reliance expenses (title search costs, inspection fees, sometimes moving or financing costs).
  • In many jurisdictions, if the seller acted in bad faith (for example, knowingly concealed a fatal defect), some courts allow broader consequential damages.

• Specific Performance with Abatement:

  • Available when the title defect is relatively minor or affects only part of the property.
  • Buyer accepts what the seller can convey, and the purchase price is reduced to reflect the deficiency (for example, fewer acres than promised, or a small encroachment).
  • Frequently tested in fact patterns involving a shortfall in acreage or an easement that slightly reduces usable area.

• Damages:

  • Expectation damages (difference between contract price and fair market value of the land with defective title) may be available.
  • Many jurisdictions limit damages if the seller acted in good faith but simply could not convey marketable title (for example, because a third party refused to release an interest). In those jurisdictions, the buyer may be limited to return of the deposit plus out‑of‑pocket expenses.

The seller cannot compel the buyer to accept unmarketable title unless the buyer has expressly waived the defect.

The exam sometimes tests the “good‑faith but unable to convey” limitation by having a seller reasonably but mistakenly believe their spouse will sign off, or a neighbor will release an easement, and then that person refuses. Many courts treat the seller as not a willful wrongdoer and limit the buyer to restitution and reliance, not full lost‑profit damages.

Seller’s Right to Cure

A seller is not in breach merely because a defect exists a month before closing. On the exam:

• Always ask: “Can this be cured by closing?”
• If yes, the buyer may not rescind early.
• If it becomes clear that cure is impossible by closing (for example, litigation over title would take years), the buyer can treat this as an anticipatory breach.

Examples:

• Mortgage or lien that can be paid off at closing from sale proceeds → curable; buyer must allow cure.
• Disputed easement requiring lengthy litigation with an intransigent neighbor → likely incurable by closing; buyer may rescind.

Timing, “Time of the Essence,” and Tender

Because marketability is measured at closing:

• If time is not of the essence, a late but prompt tender by either side often suffices, and a seller who can cure shortly after the stated closing date may still satisfy the covenant.
• If the contract makes time of the essence, failure to deliver marketable title on the closing date is a material breach.

Key Term: Time of the Essence Clause
A contract provision stating that timely performance on the specified date is a material condition; failure to perform on that date constitutes a material breach.

Key Term: Tender of Performance
An unconditional, present offer by a party who is ready, willing, and able to perform their contractual obligation, made at the time and place performance is due.

The buyer’s obligation to tender the price and the seller’s obligation to tender a deed with marketable title are typically concurrent conditions. A buyer need not tender if it is clear the seller cannot provide marketable title; but if the seller can cure, the buyer must tender or risk being in breach.

On the MBE:

• If time is not of the essence and the seller cures shortly after the scheduled date, both parties may still enforce the contract, though the late party may be liable for incidental damages (for example, extra interest, interim taxes, or storage costs).
• If time is of the essence and the seller cannot tender marketable title on the date, the buyer can usually terminate and recover the deposit.

Worked Example 1.1

A buyer contracts to purchase a house. Before closing, the buyer discovers that the property is subject to an old, unreleased mortgage. The seller promises to pay off the mortgage at closing using the sale proceeds. Is the title marketable?

Answer:
Yes. Because the seller will satisfy and release the mortgage at closing from the purchase money, the buyer will receive title free of that encumbrance at the time required. The existence of a payoff‑able mortgage prior to closing does not make title unmarketable. The buyer must allow the seller to use the sale proceeds to discharge the mortgage as part of the closing process.

Worked Example 1.2

A seller acquired title to a parcel by adverse possession but never obtained a court judgment. The buyer refuses to close, claiming the title is unmarketable. Is the buyer correct?

Answer:
Yes. On the MBE, title held solely by adverse possession is generally treated as unmarketable unless confirmed by a quiet title judgment. Even though the seller may have good title as between herself and the former owner, a reasonable buyer would fear litigation and difficulty reselling or mortgaging the property. The buyer may refuse to close and seek rescission.

Worked Example 1.3

A recorded subdivision plat indicates a utility easement along the rear 10 feet of every lot. When the buyer contracts to purchase Lot 5, there is an obvious utility pole and line in that strip. The contract is silent about easements. At closing, the buyer refuses to proceed, claiming the utility easement makes title unmarketable. Is the buyer entitled to rescind?

Answer:
No. A visible, standard utility easement that services the property is typically treated as a beneficial, expected encumbrance. A reasonable buyer would not object, and most courts hold it does not render title unmarketable, especially where the easement is apparent and recorded. Unless the facts suggest this easement is unusually burdensome (for example, a major transmission corridor severely limiting use), the buyer must complete the purchase.

Worked Example 1.4

A city zoning code requires an eight‑foot side setback. A later survey reveals that the house stands 7.5 feet from the side lot line. The buyer discovers this before closing and refuses to buy, alleging unmarketable title. There is no variance. How should a court rule?

Answer:
The buyer may rescind. The zoning code itself is not an encumbrance, but the existing violation (the house is too close to the lot line) exposes the buyer to potential enforcement action. That existing zoning violation renders title unmarketable. The seller can either cure by obtaining a variance before closing or face rescission.

Worked Example 1.5

Seller agrees to sell Blackacre, described in the contract as “approximately 100 acres,” for $1,000,000. Just before closing, a survey shows that the property is only 95 acres, but otherwise title is clean. Buyer sues for specific performance with a$50,000 abatement. Is that remedy available?

Answer:
Likely yes. The defect is quantitative, not qualitative: the seller can convey essentially what was promised, just slightly less. Courts commonly grant specific performance with abatement to account for a minor acreage deficiency where the shortfall is consistent with the “approximately” language and does not fundamentally change the character of the property.

Worked Example 1.6

Buyer agrees to purchase land from Seller under a 10‑year installment land contract. Five years into the contract, Buyer discovers that a neighbor has a recorded right of first refusal to purchase the land if Seller ever sells it. Seller has taken no steps to remove this right. Buyer stops making payments and sues to rescind immediately, alleging unmarketable title. How should a court rule?

Answer:
Buyer is unlikely to succeed at this stage. In an installment land contract, the seller’s duty is to deliver marketable title when the deed is due (usually after the final payment). A right of first refusal is a classic encumbrance, so Seller must remove it by that time. But unless it is clear that Seller cannot or will not cure by the end of the contract term, Buyer cannot stop paying or rescind mid‑contract based solely on current unmarketability.

Worked Example 1.7

A contract requires Seller to convey marketable title to Buyer in 60 days. The contract says nothing about deed covenants. On day 55, Buyer discovers that a third party claims an unrecorded easement across the land, and promptly notifies Seller. Seller does nothing, and at closing Buyer nonetheless accepts a deed and pays the price. Six months later, the third party sues Buyer and successfully establishes the easement. Buyer then sues Seller for breach of the implied covenant of marketable title. Result?

Answer:
Buyer will lose. Once Buyer accepted the deed and closed, the contract merged into the deed, and the implied covenant of marketable title was extinguished. Because the deed contained no covenants of title, Seller made no post‑closing promises about title. Buyer’s remedy should have been to refuse to close or seek specific performance with cure or abatement before accepting the deed.

Worked Example 1.8

A contract for the sale of land states, “Closing shall occur on June 1, time is of the essence,” and requires Seller to convey marketable title. Because of an old unreleased mortgage, Seller cannot deliver clear title on June 1 but is able to obtain a release and tender a clean deed on June 5. Buyer refuses to close and sues to recover the deposit. How should a court rule?

Answer:
Buyer should prevail. The express time‑of‑the‑essence clause makes timely performance a material condition. Seller’s inability to deliver marketable title on June 1 is a material breach that Buyer need not excuse, even though Seller cured a few days later. Buyer may terminate and recover the deposit.

Worked Example 1.9

Seller contracts to convey Blackacre to Buyer “subject to all easements, covenants, and restrictions of record.” A recorded subdivision declaration limits structures on the lot to single‑family residences of at least 2,500 square feet. Buyer plans to build a smaller cottage and, at closing, refuses to accept the deed, claiming the restriction makes title unmarketable. What result?

Answer:
Buyer will likely be required to close. The recorded restriction is an encumbrance, but the contract expressly stated that the land would be taken subject to easements, covenants, and restrictions of record. That language operates as a waiver of any objection to those encumbrances for marketability purposes. Buyer’s problem is not unmarketable title but an incompatibility between the intended use and the recorded restrictions.

Worked Example 1.10

Seller contracts to sell land “free and clear of all encumbrances.” After contract but before closing, Seller grants Neighbor an option to purchase the land if Buyer’s transaction falls through. Seller then attempts to close with Buyer and tender a deed, but refuses to cancel Neighbor’s option. Buyer sues for specific performance with removal of the option. Is Buyer entitled to relief?

Answer:
Yes. An option to purchase is a significant encumbrance, and Seller expressly promised to convey free and clear of encumbrances. Because Seller created the option after contract, Buyer is entitled to specific performance requiring Seller to remove the option (for example, by buying it out or obtaining Neighbor’s release) or, if that is impossible, to rescind and recover damages.

Exam Warning

Many MBE questions test whether a visible, beneficial easement (such as a utility line) renders title unmarketable. Unless the buyer objects by contract or the easement is undisclosed and materially burdensome, such easements do not make title unmarketable. Focus on whether the easement increases litigation risk or significantly reduces value.

Another frequent trap is confusing physical defects (like termite damage) with title defects. Unless the facts tie the defect to a legal claim against the title, treat it as a separate issue, not a marketability problem.

A further trap is to forget merger. If the fact pattern says the deed has already been delivered and accepted, do not analyze the implied covenant of marketable title. Shift to analyzing deed covenants, fraud, or misrepresentation.

Revision Tip

Always ask, in order:

• Is there an implied covenant of marketable title in this contract?
• At what point in time are we evaluating marketability (before closing, at closing, or after closing)?
• Is the alleged defect one that a reasonable buyer would see as posing real risk?
• Can the defect be cured by closing?
• Has the buyer given notice and an opportunity to cure, or waived the defect?
• Has the deed already been delivered, triggering merger?
• If after merger, do any deed covenants apply to this defect?

Keeping this sequence in mind helps prevent common exam errors.

Key Point Checklist

This article has covered the following key knowledge points:

• Every standard land sale contract includes an implied covenant of marketable title that protects the buyer unless clearly waived.
• Marketable title means freedom from reasonable doubt and significant risk of litigation, not perfection of the record.
• Common defects that make title unmarketable include outstanding interests, adverse possession, mortgages and liens that will remain, burdensome easements, restrictive covenants, options, significant encroachments, and existing zoning violations.
• Beneficial, visible, or known easements (such as ordinary utility easements) and mere zoning restrictions usually do not render title unmarketable.
• Physical defects in the buildings (such as termites or leaks) generally do not affect marketability of title unless tied to a legal claim, but may give rise to other contract or tort remedies.
• The seller must deliver marketable title at closing (or when deed delivery is due in an installment land contract), and has until then to cure defects.
• Under equitable conversion, the buyer holds equitable title before closing, but the marketability obligation is still measured at closing.
• Once the deed is delivered and accepted, the doctrine of merger extinguishes the contract’s implied covenant of marketable title; post‑closing title claims turn on deed covenants or fraud theories.
• The buyer must give notice of defects and a reasonable opportunity to cure before treating the seller as in breach, unless cure is clearly impossible in time.
• If marketable title cannot be delivered, the buyer may rescind and recover the deposit, seek specific performance with abatement in appropriate cases, or pursue damages (often limited if the seller acted in good faith).
• Time‑of‑the‑essence clauses make timely delivery of marketable title a material condition; failure to perform on the exact date is a material breach in those contracts.
• The seller cannot force the buyer to accept unmarketable title unless the buyer has expressly agreed to do so, for example by taking subject to specified encumbrances.
• Recording act analysis and marketability analysis are distinct but related: a prior interest that would clearly lose under the recording statute usually does not make title unmarketable.
• Installment land contracts shift the timing of the marketability obligation to the deed‑delivery date; mid‑contract unmarketability ordinarily does not excuse the buyer’s payments.

Key Terms and Concepts

• Marketable Title
• Implied Covenant of Marketable Title
• Encumbrance
• Adverse Possession
• Doctrine of Merger
• Equitable Conversion
• Installment Land Contract
• Specific Performance with Abatement
• Quitclaim Deed
• Easement
• Restrictive Covenant
• Zoning Violation
• Quiet Title Action
• Marketable Title Act
• Time of the Essence Clause
• Tender of Performance
• Option to Purchase
• Right of First Refusal