What Is an Encumbrance on a Vermont Real Estate Title?

There are easy encumbrances to identify in the land records such as mortgages, liens and judgements.  Then, there are other interests  that are not so clearly defined, such as rights of first refusal, easements and other language in the land records that raise a question as to whether or not a property should be considered encumbered so as to diminish the value of the subject Vermont real estate.    The question then for any Vermont title abstractor is  whether or not these factors could be identified as “marketability issues” and thus subject to a reworking or withdrawal from a real estate contract.

Title marketability is best defined in Section 1.3 of the Vermont Title Standards, which states:

A marketable title is one that may be freely made the subject of resale.  A marketable title is one that allows an owner to hold the land free from the probable claim of another. It is a title which would allow the holder of the land if he or she wanted to sell, to transfer a title which is reasonably free from doubt. A title is marketable when its validity cannot be said to involve a question of fact and is good as a matter of law. First National Bank v. Laperle, 117 VT 144, 157 (1952).

The question in the National Bank analysis then becomes whether or not a “probable claim of another” can cloud the title to the point where it is considered unmarketable, even if the interest does not directly effect the condition of the property or the intended use.  Thus, it is important for a Vermont title abstractor to investigate and disclose to their client all potential defects, not just those that hold a direct financial interest to a property.

A right of first refusal held by a third party is a prime example of such a disclosure.  For arguments sake, a case can be made that such an option by a third party breaches the marketability provision by giving preferential treatment to someone other then the buyer if they intend to sell the land at a future date.  However, what if the first refusal only allows the third party to purchase the property at a price that is set by the owner and thus, not subject the owner to a discount or other concessions to the third party?

Abstracting a Vermont tile is not as simple as running a 40 year chain of title and then running back a list of mortgages and liens to see which are still active on the land. It takes a much deeper understanding of the property and the instruments that bare an interest in the land for an effective title opinion to be constructed.  Understanding the Vermont case law that surrounds such an analysis is a crucial first step in being able to advise clients of all potential defects that can hold a substantial impact on their final purchasing decision.