Clear Title Vs. Cloud Title
What Is a Clear Title?
A clear title is one that is devoid of any form of lien or levy from creditors or other parties that might cast doubt on legal possession. For instance, the owner of a residence with a clear title is the sole uncontested owner, and no other person may legally assert possession. A clean title is also known as a “just title” or a “free and transparent title.”
Any real estate transaction requires a cleanr title since it definitively identifies the property owner. Before a title can be deemed clear, title companies must do a thorough title search to identify any claims or liens against it. Two examples of defects that might make a title “dirty” are inaccurate surveys and unsolved building code infractions.
KEY TAKEAWAYS
- Clear titles are titles without any sort of lien or levy that calls into doubt the property’s lawful ownership.
- The existence of liens might cast a shadow over the title.
- This indicates that a claim or unreleased lien invalidates or affects the property owner’s title.
- Instances of separation, divorce, or improper documentation of heirs might lead to title problems.
- You cannot acquire a home without a clear title since there is no way to verify that the seller actually owns the property.
- How a Direct Title Operates
- A clear title aids in identifying any outstanding financial obligations associated with the property and is required to verify that the owner has the legal right to sell the property. If legal ownership is not reflected by a clear title, then the sale of a property might be contested.
When a claim or unreleased lien invalidates or impairs the owner’s title to the property, the presence of liens can result in a cloud on the title. For instance, the present owner may still owe mortgage payments or contractors for renovation work conducted on the home. The title would not be free from liens, and the new owner would be responsible for removing them.
Once a title has been cleared, the homeowner can register the deed in their name. The deed is the legal document that indicates property ownership. Before the new owner’s name can be placed on the deed of a home that is being purchased, the title must be clear. It is vital to understand that a property may be sold even if there are active liens on it.
The law does not mandate the removal of liens prior to the sale of a property. However, the buyer would be unable to obtain a mortgage or home equity loan, as the bank would research the property and uncover any prior liens, which would need to be removed before financing could be approved.
Mortgage loan discrimination is unlawful. There are actions you can take if you believe you have been discriminated against based on your race, religion, sex, marital status, use of public assistance, national origin, disability, or age. The filing of a report with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development is one such process (HUD).
Four Indications That a Title Is Unclear
There are numerous reasons why a title search may return the title as ambiguous. The fact that a person currently resides in a home does not indicate that the residence has been titled or transferred to that person. When it comes time to sell the home, the buyer may encounter title issues, meaning it is unclear who owns the property.
Heirs
Older properties where the heirs of a previous owner may still have some claim to the property can present complications. For instance, a previous owner may have deeded a portion of a property to a passive heir. The rights of the said heir as a partial owner may have passed to their successors, who may be unaware of the situation.
If the heir to the property never filed the deed with the county clerk’s office to transfer ownership, title issues may also develop. When the heir attempts to sell the property, title issues will arise because the deed still lists the family member who bequeathed the property to the heir.
Fraud
Possession of a free and clear title is also essential for preventing fraud. It is possible that a forged deed has been recorded in the public registry. A con artist could attempt to use a forged deed to illegally sell a property.
Splitting up or Divorce
In circumstances when a couple has split but never gone through divorce processes, title issues may arise. If the couple owned the home jointly and one person moved out after the separation, they would still own the home without getting a divorce. Due to the fact that two individuals would be mentioned on the deed, title issues would occur when the current homeowner attempts to sell the property.
The Trust
Possession of the property may have been transferred to a trust or another legal claimant. Before a potential buyer commits finances to acquire a property, title searches are undertaken in order to identify such concerns.
What is the definition of Clear Title?
A clean title indicates that a property does not have any liens or ownership problems.
Can a home be purchased without a clear title?
No. You cannot purchase a property without a clear title. If you still wish to purchase the home, you can identify any problems and attempt to repair them.
What are some causes of a vague title?
There are numerous reasons why a title that is confusing may not appear in a title search. It is possible that the property is old and the heirs never properly recorded the deed upon their inheritance. If two people are listed on the deed of a home that is jointly owned, complications may arise during a divorce. In instances of fraud, a title may sometimes appear uncertain.
What Is a Cloud on Title?
A cloud on title is any document, claim, unreleased lien, or encumbrance that might invalidate or impair a title to real property or make the title doubtful. Clouds on the title are usually discovered during a title search. Clouds on the title are resolved by initiating a quitclaim deed, which releases a person’s interest in a property without stating the nature of the person’s interests.
Any property that has liens or is under foreclosure is unattractive to potential buyers because they create a cloud on the title.
Cloud on Title Explained
A title search and title insurance are typically required by lenders as protection from any third-party claims or clouds on title to property used as collateral. Title searches and title insurance are required in the mortgage origination process.
Factors That Cause a Cloud on Title
A cloud on title usually stems from unresolved issues regarding the property. For example, foreclosure proceedings initiated by a mortgager in response to a borrower defaulting on the payment might preclude the delinquent borrower from selling the property to a third party while the foreclosure is underway.
The property may have liens from lenders or from contracts to which the property owner agreed. If a property holder has free and clear ownership of the real estate, they might use it as collateral for new financing to pay other expenses or debts. Such a transaction may include a lien being placed on the property until the debt is repaid.
Fast Fact
A cloud on title is also known as a defective title because it is difficult to discern who the proper owner is.
Property owners may discover that a mechanic’s lien was placed on the property if there was a problem involving payment for construction or redevelopment work that was contracted. The mechanic’s lien will remain in place until all labor and material costs have been resolved. A lien remains with the property rather than the property owner, which would force any buyer of the property to assume responsibility for resolving the associated issues. The discovery of this type of cloud on the title would likely discourage potential buyers from buying the property.
Probate issues—that result from an estate and inheritance matters—can also create a cloud on the title. Documents such as death certificates might be lost over time with older properties. This could raise questions about where final legal ownership rests. If a property owner passed away without defining in a will who would gain control of their estate or become the owner of the property, heirs might challenge each other in court for the property title.
KEY TAKEAWAYS
- A cloud on title is any encumbrance that puts a title to real property into question.
- Examples of encumbrances are foreclosure proceedings, liens on a property, probate, or fraudulent titles.
- Clouds on the title are resolved through a quitclaim deed.
- Fraud can also lead to a cloud on the title. False deeds might be recorded as legitimate and create legal confusion as the ownership of the property is called into question.
Source
https://www.investopedia.com/terms/c/cloud_on_title.asp
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