There are generally three defects that can make title unmarketable:
- Flaw in the seller's title
- The existence of an encumbrances on the property not reasonably knowable to the buyer
- Events that have deprived the seller of title
Physical defects normally cannot constitute title problems.
The existence of public restrictions do not affect marketability, but courts are split as to whether a violation of these can.
- However, private restrictions can.
Courts are split on whether adversely possessed title is marketable.
Courts are roughly evenly split between two rules as to what the damages are for defective title.
Under the English Rule, the buyer is limited to a return of his money.
Under the American Rule, the buyer may recover benefit-of-the-bargain damages—typically the contract price minus the fair market value at the time of the breach.