In United States
property law, a cloud on title or title defect is any irregularity in the chain of
title
A title is one or more words used before or after a person's name, in certain contexts. It may signify either generation, an official position, or a professional or academic qualification. In some languages, titles may be inserted between the f ...
of property (usually
real property) that would give a reasonable person pause before accepting a conveyance of title. According to
Investopedia, a cloud can be defined as: "Any document, claim, unreleased lien or
encumbrance
An encumbrance is a third party's right to, interest in, or legal liability on property that does not prohibit the property's owner from transferring title (but may diminish its value). Encumbrances can be classified in several ways. They may be ...
that might invalidate or impair the title to real property or make the title doubtful. Clouds on title are usually discovered during a
title search
In real estate business and law, a title search or property title search is the process of examining public records and retrieving documents on the history of a piece of real property to determine and confirm property's legal ownership, and find o ...
." Clouded title can thus be contrasted with a
clear title, which indicates that a property is unencumbered.
A cloud on title may reduce the value and marketability of property because any prospective buyer aware of the cloud will know that they are buying the risk the grantor may not be able to convey good title. Often, the discovery of a cloud on title will provide the grantee a reason to back out of a contract for the sale of real property. Some documents that affect title may be considered clouds, but nonetheless are unlikely to affect marketability or resale, such as with
covenants, conditions and restrictions
A covenant, in its most general sense and historical sense, is a solemn promise to engage in or refrain from a specified action. Under historical English common law, a covenant was distinguished from an ordinary contract by the presence of a se ...
in a
homeowners' association or
subdivision.
Examples of clouds on title include a property's address being misspelled in a
deed conveying title, a mortgage
lien
A lien ( or ) is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the ''lienee'' and the per ...
whose repayment hasn't been officially recorded, a deed which has been signed but hasn't been properly recorded, an
easement
An easement is a nonpossessory right to use and/or enter onto the real property of another without possessing it. It is "best typified in the right of way which one landowner, A, may enjoy over the land of another, B". An easement is a propert ...
that has not been properly recorded, unpaid property taxes, a failure to transfer property rights (such as
mineral rights
Mineral rights are property rights to exploit an area for the minerals it harbors. Mineral rights can be separate from property ownership (see Split estate). Mineral rights can refer to sedentary minerals that do not move below the Earth's surfac ...
) to a former owner of the property, and a pending lawsuit before a court of law over ownership to the property. The usual remedy for a cloud on title is to file a
civil action
-
A lawsuit is a proceeding by a party or parties against another in the civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used in reference to a civil act ...
to
quiet title which resolves the outstanding or unresolved cloud.
Clouded title can cause delays or denials in receiving certain forms of
disaster recovery aid, especially longer-term rebuilding assistance. This can be a more serious problem for low-income families who over time might not have been able to afford lawyers and legal fees for
probate, and who can face even worse financial problems in the wake of a disaster. This has led some states to make available low-cost mechanisms to transfer title.
Foreclosure
A cloud on titIe can be caused by foreclosure of a property.
For instance, if a current title holder of a property does not pay the mortgage on that property, foreclosure would occur.
When a property goes into foreclosure, the mortgage company becomes the owner of the property making it challenging for the current resident to sell the property.
To remove the cloud on the title being caused by foreclosure, the resident would simply need to pay what is owed on their mortgage.
This would remove the cloud on the title.
Probate
Probate is a process that occurs when a court oversees the distribution of a deceased individual's assets. Probate will sometimes cause a cloud on the title of property if an heir is not specified.
To remove the cloud on title in this situation, the court will go through a process of notifying the deceased person's beneficiaries and making a decision on who will become the executor of the estate. This person will then be responsible for having the property appraised and listed.
Clerical Error
A cloud on title can be created by something as simple as a clerical error in the legal documents.
An example would be a misspelling on a document or a document not being filed correctly.
These types of errors can usually be resolved by filing a quitclaim deed. Quitclaim deeds should only be used for minor issues that cause a cloud on title due to their limited guarantees.
See also
*
Continuando
*
Bare trust
A bare trust is a trust in which the beneficiary has a right to both income and capital and may call for both to be remitted into his own name. Assets in a bare trust are held in the name of a trustee, but the beneficiary has the right to all o ...
References
Property law
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