Defective title refers to a problem with a real estate title deed or a trading instrument. This can result in a non-marketable title, leading to contract cancellation or compensation for damages. Defective title insurance is available to protect against financial loss. Buyers can sue for damages if they receive a defective title.
Defective title means there is a problem with the real estate title deed or a title to trading instrument. Some of the reasons for a bad title in real estate include improper filing of public records, loss of title without registering it, or an invalid prior ownership claim by another title holder. As a result, the title is not marketable and may be the basis for canceling a purchase contract or may lead to the seller owing to the buyer being compensated for damages. Sellers often purchase defective tile insurance at the request of the lender or buyer to protect both against financial loss due to defective title. For negotiable instruments, the title is often defective because the seller received it fraudulently.
In a contract for the sale of real estate, the seller expressly or impliedly agrees to deliver good title. A good security is one that is marketable and free from claims by other holders. The buyer can search public records and verify that there are no defects in the transfer of title from the first owner to the seller. If the title chain is incomplete or inadequate, the buyer often receives a defective title. It is also considered a non-tradeable property right and the buyer can bring a lawsuit against the seller for breach of contract and ask the court to pay damages.
Signatories to negotiable instruments are also required to transfer negotiable ownership. A negotiable instrument is a signed legal document that promises to pay the holder’s money, such as a check or bill, at a certain time. The title of such tools should be free from defects and if not, the buyer has the right to sue for damages. The cause of a defective title is often due to fraud, but coercion and other illegal means are also common causes. Courts may find that the new holder is entitled to the instrument or is a holder in due time if the holder was unaware of any fraud or illegal activity.
Defective title insurance is a solution available to sellers and buyers to protect themselves against financial loss. A buyer can purchase defective liability insurance as protection against the original owners for breach of covenants and other matters. For example, if there is an agreement not to move a mobile home onto the property, but the previous owner violates that violation, the insurance company can provide legal assistance and pay damages from lawsuits.
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