What must a broker do when they find out that the title is not merchantable?

• A. Immediately notify the owner regarding the condition of the title
• B. Notify the buyer at closing
• C. Do nothing
• D. Seek an appraisal

Answer: (A)

When a title is not merchantable, the issue is that the property cannot be reliably transferred free of encumbrances. The broker’s duty is to the owner (the client) and to disclose material facts that affect the owner's ability to convey title. So the proper action is to immediately inform the owner about the problem and discuss remedies, such as curing the title or addressing the encumbrances before closing. This protects the owner’s interests and allows them to decide on next steps.

Notifying the buyer at closing would bypass the owner’s rights and could cause confusion or risk for all parties. Doing nothing would violate the broker’s fiduciary duty, and seeking an appraisal does not address the title defect.