⚡ 10-Second Rule
Every land contract quietly promises the seller will hand over ownership so solid that no careful buyer would fear a lawsuit.
🧒 ELI-10 Scene
Tara agrees to buy Ben's used bike for $200, pickup on Saturday. On Friday she hears troubling things. Ben's brother claims he owns half the bike. And the repair shop still holds a lock on it for an unpaid bill. Tara doesn't need proof the bike is stolen. Real, reasonable doubt is enough to walk away. But timing matters. Ben has until Saturday to calm the brother and pay the shop. And once Tara pays and rides the bike home, the deal is done. After that, she can only complain about promises printed on her receipt.
⚖️ Actual Rule
Every contract for the sale of land contains an implied covenant that the seller will deliver marketable title at closing — title reasonably free from doubt, which a reasonably prudent buyer would accept without fear of litigation. Title is unmarketable where it rests on adverse possession not confirmed by a quiet-title judgment, or where the property is subject to an encumbrance — a mortgage, lien, easement, or restrictive covenant — not excepted by the contract. The mere existence of a zoning ordinance does not render title unmarketable, but an existing violation of a zoning ordinance does. The seller need not have marketable title until closing, and may use the sale proceeds to discharge liens at closing; in an installment land contract, marketable title is required only when the deed is due after the final payment. A buyer who discovers a defect must notify the seller and allow a reasonable time to cure; if the defect remains, the buyer may rescind, sue for damages, or seek specific performance with an abatement of the price. Under the merger doctrine, the contract's title covenant merges into the deed at closing, and thereafter the buyer may sue only on the covenants, if any, contained in the deed.
ELI-10 translation: the seller must show up at closing with ownership nobody would reasonably fight over, and after closing only the deed's own promises count.
🔍 Ask These Questions
- Does the contract change the default — did the buyer agree to take title with stated exceptions? (Did the buyer already say yes to certain flaws?)
- Is there a real defect: a rival ownership claim, an unproven adverse-possession title, or an encumbrance? (Is there a genuine cloud, not just a nervous feeling?)
- Is the supposed defect just a zoning law, or an actual violation of one? (A rule about the land is fine; breaking that rule is not.)
- Has closing arrived yet? (The seller gets until the very last day to fix things, often using the buyer's own money.)
- Did the buyer notify the seller and allow time to cure? (Did the buyer point out the problem and wait a fair stretch?)
- Has the deed been accepted? (After closing, the contract promise melts into the deed, and only the deed's promises survive.)
⚠️ Bar Trap
Exam language: Examiners have the buyer discover an outstanding mortgage or lien weeks before closing and repudiate immediately. The buyer loses: the implied covenant requires marketable title only at closing, and a seller is entitled to satisfy encumbrances at closing out of the purchase proceeds. The mirror trap runs the clock the other way — after the deed is accepted, the buyer sues on the contract's marketable-title covenant, which merger has already extinguished.
ELI-10: Don't let the buyer quit early. The seller can pay off the loan with the buyer's own money on closing day. And once the deed changes hands, the old promise is gone.
🧪 Question
A seller contracted to convey a lakeside cottage to a buyer for $400,000, closing set for September 1, with no provision addressing the quality of title. In early August, the buyer's title search revealed that the cottage was subject to a recorded $150,000 mortgage held by a bank. The buyer immediately notified the seller that she was terminating the contract and demanded return of her $40,000 deposit. The seller refused, and on September 1 the seller appeared at closing with a deed and a payoff letter from the bank providing that the mortgage would be discharged at closing out of the sale proceeds. The buyer did not appear. The buyer sued the seller for return of the deposit.
Is the buyer entitled to return of the deposit?
(A) Yes, because the recorded mortgage was an encumbrance rendering the seller's title unmarketable. (B) Yes, because the contract contained no covenant regarding the quality of the seller's title. (C) No, because the seller was not obligated to furnish marketable title until closing and stood ready to discharge the mortgage from the proceeds. (D) No, because a mortgage is not the type of defect that renders title unmarketable.
Answer: (C). The implied covenant of marketable title is measured at closing, and a seller may use the purchase money to clear liens at that time. The buyer's August repudiation was premature, so the buyer breached and forfeits the deposit claim.
💡 Why the Wrong Answers Are Wrong
- (A) identifies a genuine encumbrance but tests marketability at the wrong moment; the mortgage needed to be gone only at closing, and it would have been.
- (B) overlooks that the covenant of marketable title is implied in every land sale contract unless disclaimed — so the covenant existed, but the seller never breached it.
- (D) misstates the rule; an outstanding mortgage is a classic encumbrance and would make title unmarketable if still in place at closing.
- ELI-10: The misconception is thinking the seller must be spotless the whole time. The seller only needs clean title on the final day.
