Marketable Title and How It Is Affected by Liens - dhw
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Marketable Title and How It Is Affected by Liens

What Is Marketable Title and How Is It Affected by Liens?

Fact Scenario

A entered into an agreement of sale with B wherein A agreed to purchase certain real estate. Among other items in the agreement, B specifically agreed to convey “marketable title” to A. The title inspection ordered by A revealed numerous liens against the real estate, including tax liens and judgment liens.

Most agreements for the sale of real estate contain a clause that requires the seller to convey “marketable title” or “merchantable title” to the buyer. In essence, “marketable title” refers to a title free of encumbrances. A lien is an encumbrance upon real property and the existence of a lien on real property renders the title unmarketable.

Perhaps one of the most common types of liens is a judgment lien. If a creditor succeeds in a lawsuit against a debtor, the court enters a judgment in favor of the creditor. A judgment is a judicial declaration that the creditor is entitled to a specified sum of money from the debtor. A judgment lien arises when a judgment creditor follows the procedure set forth in the applicable state law and obtains a judgment lien against the property of the judgment debtor. A lien may be obtained by the judgment creditor as to the real property, as well as the personal property, of the judgment debtor. The laws governing liens and the recordation of liens vary from state to state.

Types of Liens

A few different types of liens are:

  • judgment liens;
  • environmental liens;
  • equitable liens;
  • mechanic’s or materialman’s liens; and
  • tax liens.

Remedies

In the fact scenario described above, it may be possible for A to take title to the real estate subject to the liens. In the alternative, a portion of the sale proceeds may be held back to satisfy the liens. It may be beneficial for A to seek the advice of an attorney to determine the best remedy in light of the circumstances.