Every Massachusetts agreement for the purchase and sale of real estate will contain a provision requiring that, at closing, the Seller shall convey to the Buyer “good and clear record and marketable title.” The phrase seems simple enough at first glance but a deeper analysis reveals the complexity of title under our imperfect system of recording ownership of real estate.
The fundamental concept of “good and clear record and marketable title” means that, at closing, the Seller must be able to prove there is an unbroken “chain of title” (a history of consecutive ownership) leading into the Seller. For instance, if the records in the Registry of Deeds show that the property was once owned by A, then transferred from A to B, then transferred from B to C, then transferred from D to Seller, there is a clear break in the chain of title: there is no record transfer from C to D. Consequently, it would appear that D had no interest in the property to convey to the Seller. As the common law for centuries has provided, nemo dat quod non habet (one cannot give what one does not have). In other words, Seller does not have good title to transfer to Buyer at closing.
“Record title” means that Seller’s title can be established by review of the records in the Registry of Deeds (as supplemented by the Probate Court). This is required to give certainty as to title, and so that the Buyer will not have to worry about non-record matters – facts not ascertainable by a review of the Registry – when trying to determine Seller’s title. If Seller must rely on evidence not contained in the Registry to prove ownership, Seller might well have good title, but it is not record title. To continue with the above example: suppose that C had in fact given a deed to D, who never recorded. D then conveys to Seller. Seller might have good title (an unbroken chain of ownership leading into Seller), but it is not record title until that previous deed from C to D is recorded.
“Clear title” is not what it appears to mean. In this case, the exceptions swallow the rule. In a theoretical world, clear title would mean totally unencumbered, unrestricted ownership (libertarians rejoice!). However, we live in a complex and densely populated society with many competing interests and laws affecting ownership and use of our land. Thus, our title will always be restricted by at least some of the following: building and zoning codes, environmental restrictions, easements, takings (i.e. eminent domain), rights of neighbors and condo associations, and the right of taxing authorities to assess taxes and file liens. Clear title means, then, the ability to convey title that is not encumbered by certain other matters, namely mortgages given by prior owners. If, at closing, Seller’s title is encumbered by an undischarged mortgage placed on the property by a previous owner (even if that mortgage was in fact paid off at some prior time), Seller cannot convey clear title. If the Seller is involved in a lawsuit regarding Seller’s ownership or other rights to the property, there is a “cloud on title” and Seller likewise cannot convey clear title.
Usually, Seller will convey title to Buyer that is still subject to Seller’s own mortgage, which will be paid off with the purchase funds Buyer gives Seller in consideration for the sale. While Seller’s title technically is not clear at closing, conveyancing practice standards provide that Seller may still convey title because the parties have agreed that Seller’s mortgage will be paid off and discharged (cleared from the title records) as quickly as possible after the closing.
“Marketable title” is essentially a catch-all phrase and presumes title is good, clear, and of record. In other words, the title is such that it can be sold. In practice, with the advent of title insurance, a title does not need to be perfectly marketable to be conveyed. If there is a minor issue with Seller’s title but very little risk that any issue will ever arise, Buyer’s title insurance company may nevertheless agree to insure the title that Seller has to give to Buyer, and the closing can occur. For instance, assume that Seller had once had a mortgage that Seller long-ago paid in full. The bank never recorded a discharge of that mortgage, but Seller can produce a letter from the bank stating that the mortgage was definitively paid off. Technically, Seller has a “missing discharge” problem and that prior mortgage will still encumber the property as far as the Registry is concerned. Nevertheless, Buyer’s title insurance company may decide that Seller’s title is insurable notwithstanding the missing discharge, because the insurance company knows the bank has no right to enforce that mortgage. Where Seller has good, record, and insurable title, the closing can usually occur.