Cloud on Title
What is a cloud on title?
Well, first it is essential to understand what a title is. A property title is a legal document which includes the specifics about the property that is being purchased and who owns it. It is often in the form of a deed. Now that you understand what a title is, we can discuss what a cloud on title is. Do you remember that kid from Charlie Brown who always had that cloud of dust that followed him around? His name was Pig Pen. Well, a cloud on title dirties up the title, just like the dust cloud that followed Pig Pen around.
More specifically, a cloud on title is any document, claim, unreleased lien, or encumbrance that may impair or injure the title to a property or cast doubt on the title’s validity. So, as you can see, it dirties up the title. Conversely, a clear title is one without any clouds.
How is a cloud on title revealed?
Usually, a cloud on title is revealed by the completion of a title search. What is a title search you ask? A title search is an examination of the public records to determine the ownership and encumbrances affecting real property. Okay, that makes sense, but what is an encumbrance? An encumbrance is any right to or interest in land that affects its value. Encumbrances include outstanding mortgage loans, unpaid taxes, easements, and deed restrictions. Learn everything you need to know about encumbrances for the state real estate exam by reading our article here.
Do clouds on title impact a property owners ability to transfer title (sell property)?
That depends on how serious the cloud is. Usually, the owner is prevented from conveying a marketable title while the “cloud” remains unless it is only for a minor nuisance item. Would you want to purchase a property that included a cloud on the title? Nope, I didn’t think so. Clouds must usually be cleared from a title before it is transferred.
How can a cloud on title be cleared from the title?
Clouds on the title are usually removed from the record by a quitclaim deed or a quiet title proceeding initiated by the property owner.
Is there anything that can protect a property buyer in case there is a cloud that is hidden or unknown that is uncovered later?
There sure is. It is called title insurance. It was created specifically for this purpose. Learn more about title insurance here.
Check out this sample real estate test question related to a cloud on title:
A quitclaim deed is usually used in which of the following situations:
A. To convey only fee simple title
B. To remove a cloud on title
C. To convey the title to property that is transferred by probate
D. To burden the grantor with liability for defective title
Correct answer: B
Explanation: One of the general uses of a quitclaim deed is to remove clouds on title. A cloud on title is any claim, document, encumbrance or unreleased lien that might invalidate or impair the title to real property, or make title doubtful. Quitclaim deeds are also used between close relatives, such as when one heir is buying out the other.
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