What is a “Cloud” on Title & How Does it Affect Property Ownership?
The transfer of real estate is very complex. One of the most important aspects of transferring real estate is proving that the current owner has the legal right to sell the property. There are multiple steps in buying and selling property that must be taken and quite a bit of paperwork that must be filled out before ownership can be transferred from one party to another. Typically, these steps can be taken without too much trouble, but every once in a while, issues may arise that inhibit the sale of a property. A "cloud" is an example of one such issue.
What Does it Mean to have a “Cloud on Title”?Often considered synonymous with "title defect," the term "cloud on title" refers to any issue with a title that may cause a reasonable buyer to hesitate before purchasing the property. A “cloud on title” is anything that could impair or injure the title to a property or cast doubt on the title’s validity. Examples of common clouds include (but are not limited to):
- Unpaid property taxes
- An unsatisfied mortgage lien
- A pending lawsuit over ownership of the property
- An improperly recorded deed
- An improperly recorded easement
- Improperly recorded ownership
- Any outstanding lien or other encumbrance
What Happens if there is A Cloud on Title?
In some cases, the buyers may choose to back out of a sale once a title defect is revealed. In these instances, the real estate contracts are typically allowed to expire, and the title defects are left unresolved. These unresolved title defects can significantly reduce property value.
Clearing the Clouds
What is a Quiet Title Action?A quiet title action is a lawsuit that is intended to settle the title issue or establish the title to a property. A quiet title action may be used if there is a cloud on title in order to address these issues. Once the current ownership is clearly defined and other claims have been satisfied, the property can be sold.
Can Property Be Transferred Without Filing A Quiet Title Action?In some instances, conveyance of a title may be possible without filing a quiet title action. However, this often presents a risk for the buyers. Generally, title companies will either not issue an insurance policy for a defective title or they will "insure around" the defect. That is, the insurance policy will only cover issues relating to unknown hazards that may arise at a later date. In these instances, the buyers have to front the costs of issues relating to the defect on their own, as they will not be covered under the policy.
The last thing you want in your real estate transaction is to get ready to close and learn there is an unresolved cloud on the title of the property you are purchasing. Having a professional title company conduct a title search before closing on a property will help make the process go more smoothly. Our title experts in Lake Ozark, MO are here to help with all your title insurance needs. For more information about our title services at the Lake of the Ozarks, visit our website at www.ArrowheadTitle.com.
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Where Accuracy Matters!