A cloud on title is something odd about a deed for real property that has been recorded that might invalidate or impair the title. It usually stems from unresolved issues with the property. Buyers should proceed with caution because there is something about the deed that requires closer attention.
Some examples of a cloud on a title include:
- A wrong spelling of the property’s address in a deed conveying title.
- Foreclosure proceedings underway by mortgager in response to a borrower defaulting on payment.
- Failure to transfer certain property rights to the former owner, such as mineral rights.
- A mortgage lien whose repayment has not been officially recorded with a local record office.
- Covenants are rules, conditions, or restrictions place on a property by a subdivider or other landowner to create uniformity of building and uses within tracts of land or groups of lots.
- Probate matters that involve estates and inheritance can create a cloud on title. If a property owner dies without a will defining who gains control of their estate, the property title may become in doubt as heirs challenge each other in court.
- A fraudulent title recorded would create legal confusion and a cloud on the title.
- An encumbrance is a claim or right held by some party other than the owner or a claim that is not a lien that limits the ownership of the property such as conditions, restrictions, easements, reservations, etc.
- A mechanics lien placed on the property for construction work contracted. The lien remains on the property and does not follow the owner, forcing a buyer to assume responsibility for repayment.
- Any pending lawsuit before a court of law over ownership of the property.
Title Insurance
Title insurance protects the insured and their heirs from loss or damage due to defects, liens, or encumbrances in the title or actual ownership of the property as of the date of the policy.
A Clear Title
A clear title is one without any kind of impairment, lien, or levy from other parties and poses no question of legal ownership.
In most cases problems with a title can be cleared up when proper documents are submitted to the local record office. This lifts the cloud on the title. This is not complete legal advice. Please be sure to consult your real estate agent and attorney.
Closing Delays
One thing is sure: a cloud on the title will slow down the paperwork associated with buying and selling property.
Patience may be a virtue, but it is one that is often tested when you are eager to close a loan and get on with your project. To save your dream and your nerves, Clean up the title ASAP.
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References
https://www.investopedia.com/terms/c/cloud_on_title.asp
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