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?

Before a property can be purchased or sold, a professional title company will conduct a title search to uncover any potential issues that may hinder the sale process. If a cloud is discovered, steps must typically be taken to resolve it before the sale can commence. Sometimes these issues can be resolved easily. For example, the sellers may have the funds needed to pay off an outstanding lien or your title professional may be able to help you obtain a needed signature to clear the encumbrance. If on the other hand, the solution is not so readily accessible, the title issues may be addressed by filing a "quiet title" action.

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.
Location: Lake Ozark, MO, USA

Comments

Post a Comment

Popular posts from this blog

Title Commitment vs Title Report

Image
Do you know the difference between a title commitment and a title report? While these documents may sound similar at first, they actually serve very different purposes and should not be confused. As your trusted title company at the Lake of the Ozarks , Arrowhead Title is here to help clear up any misunderstandings you may have about title commitments and title reports. Title Commitments Title commitments are issued when someone is in the process of buying a home or piece of property. After the title search has been conducted (that is, after your title company has thoroughly researched the public documents for any pertinent information regarding the property), the next step is to issue the title commitment.  The title commitment is exactly what it sounds like: a commitment  to provide title insurance to the lender and the buyer under the terms described. The title commitment outlines the conditions and exceptions that will impact the title insurance policy. Condi...
Read more

9 Fun Facts About Title Insurance

Image
Title insurance is a crucial part of buying real estate, whether a home, business, or commercial or residential plot of land. Without title insurance, your right to use and occupy your new property may be hindered by rights and claims asserted by others - potentially even years after the closing date. Despite its incredible importance, title insurance is largely misunderstood (if it's understood at all) in the general community. Arrowhead Title, Inc. is here to educate you on our unique industry by filling you in on these fun facts about title insurance. Fun Facts About Title Insurance 1.   Benjamin Franklin was the first person to come up with the concept of title insurance. 2.   Title insurance's primary focus is proactive, not reactive - it aims to prevent issues from ever arising in the first place. 3.   Title insurance is available in several other countries (not just the States). For example, it is used in Northern Ireland, Canada, Mexico, New Zealand, ...
Read more

9 Documents to Expect at Closing, Part 2

Image
Closing day is a date you've been looking forward to for a long time. All you have to do is get through a huge stack of legal documents without getting carpal tunnel! As the best title company at the Lake of the Ozarks , Arrowhead Title knows exactly what documents are coming your way. Last week we talked about four of the major documents you can expect on your closing date. Read on to learn about five more documents you will want to be ready to review and sign. Call Arrowhead Title for a team you can trust - we would love to help you prepare for and navigate the closing process! 5) Title Documents When you purchase your home, you are actually purchasing the right to the property. You won't technically own your home until it is paid off, but the title documents give you the legal right to the property. At this point in the closing process, the title has been thoroughly researched by the title company. During this search, any issues associated with the title should have...
Read more