Good title in property law refers to a title that does not have any encumbrances or liens on it. A seller often has to present good title in order to complete the sale of property, because it’s one of the key provisions of a purchase contract. The alternative name for it is a clear title. In the real estate industry, good title has become synonymous with marketable title, which means that a court of equity will find that there is no reasonable doubt that the property can be freely sold or purchased, and therefore the purchase contract can be enforced. Good title often refers to the legal or equitable bundle of rights in a property, which includes the right to exclusively possess, use, and enjoy the property and the right to convey or partition the property. The status of property title can be verified by examining records at the custodian of records, such as the Registry of Deeds.
A bad title is not only a title that is not clear, but one that a court of equity or a court contemplating equitable relief would deem non-marketable. That is, the court finds that there are reasonable doubts as to whether the property is free of liens and encumbrances, and therefore the buyer is not compelled to complete the sales process. If the title is marketable, then the court using equity law may declare it as good and enforce a sales contract.
Individuals often obtain title insurance if they are concerned about unknown facts arising after the sale and to protect against financial loss. It can be purchased to protect the owner of the property against claims of a faulty title or the buyer, and it’s often required by mortgage lenders on the buyer’s side. The reason is that the insurance company has to pay for financial loss due to bad title, as well as legal defense if actions are brought against the buyer. The insurance indirectly protects the lender’s interest in the property.
Real estate lawyers, property title search companies, and buyers can often search public records to determine whether the title to a property is good. Beginning with the seller, the buyer can research the chain of ownership to confirm that the seller is the rightful owner of the property and has the authority to sell it. In some jurisdictions, the examination of records to determine good title and issuing an option on the title is called an abstract. The buyer can sue the lawyer or property title search company for negligence if the title is in fact not a good title, and it may be the buyer's only option if he or she did not purchase title insurance. A title insurance company provides an abstract, and it also insures against errors on its part.