A title search reveals a decades-old deed of trust that was actually paid off in full but was never formally reconveyed, creating a technical cloud on title. Despite this defect, a title company agrees to issue a policy insuring over the old deed of trust for an additional premium. What does this scenario best illustrate?
- AThe property now has good and marketable title as a matter of law
- BTitle can be insurable even though it may not be strictly marketable, since insurability and marketability are distinct concepts
- CThe title company has certified that the deed of trust was properly reconveyed
- DThe buyer will be unable to obtain any financing regardless of the title policy issued
Show answer & explanationAnswer & explanation
Correct answer: B. Title can be insurable even though it may not be strictly marketable, since insurability and marketability are distinct concepts
Marketable title means title free from reasonable doubt or defects that a court could enforce; insurable title simply means a title company is willing to insure against a specific risk, often for an extra premium, even though a technical defect remains. This scenario shows title insurance can bridge a marketability gap without curing the underlying defect.
Why the other options are wrong
- A. A remaining recorded (even if paid) deed of trust is still a technical defect affecting marketability.
- C. The title company did not confirm reconveyance; it is insuring around the risk instead.
- D. Lenders often still finance an insured property despite a cloud, based on the title policy coverage.
Marketable vs. Insurable Title
Marketable title is free of doubtful defects a reasonable buyer would accept; insurable title is title a company agrees to insure, sometimes despite known defects, for an added premium.
- A title can be insurable without being fully marketable
- Title companies may insure over minor or stale defects for extra premium
- Marketability is a legal standard; insurability is a business/risk decision
Memory trick: Insurable means 'we'll cover the risk'; marketable means 'no real risk exists.'