The term “cloud on title” is used within a real estate law context to refer to any defect or irregularity with the title of a specific item of real estate. A cloud could be any sort of defect or legal issue that could cause problems in terms of ownership, when the title is being passed from one owner to another. This could greatly reduce the overall value of the property, as clouds could create additional expenses related to the sale or transfer of the property.
Defective title or title defect are two terms that are often used interchangeably with cloud on title. To simplify, defective title or title defect means that the property’s title is not marketable. The title may be declared invalid, causing confusion regarding who is the true and legal owner of the property.
Because the terms “cloud on title” and “defective title” refer to the same concept, it is helpful to review the different types of title defects:
- A Superior Claim to Ownership Made by Another Person or Entity: A creditor may have a superior claim to someone seeking to purchase a piece of property. The creditor would protect their interest in the property by filing a lien. The would-be seller of the property must pay off, or satisfy, this lien before the buyer can purchase the property;
- Mistake in the Description of the Property in the Deed: If the deed does not sufficiently identify a piece of property, or inaccurately describes the property’s boundaries, there is a defect in the title;
- Some Other Mistake in the Deed: An example of another mistake occurs when either the person who granted the property to the current owner, or the current owner themselves, failed to sign or date the deed;
- Failure to Record a Deed: When a copy of a deed is filed with the county land recording office, the law regards this filing as having given notice of ownership interest. This is referred to as constructive notice. What this means is that although the filing does not provide actual notice to any specific person, the law deems that notice to be actual; and
- The Property is Subject to a Mortgage: If the property’s owner took out a second mortgage and failed to record that mortgage, the title is defective.
Generally speaking, a clouded title in property is discovered when conducting a title search. Some examples of common issues that could be considered a cloud on title include, but may not be limited to:
- Issues involving wording in the document, such as the wording does not comply with real estate standards for the area;
- Chain of title disputes;
- Unpaid liens on the property, as the title must be free of any encumbrances in order to be marketable;
- Failure to include the signature of a necessary party;
- Unpaid property taxes; and/or
- A pending lawsuit or other legal proceedings involving the property, such as a zoning ordinance issue or some private civil dispute.
How Are Clouds on Title Removed?
It is important to note that clouds on titles must be fully and completely resolved before a real estate transaction can occur. The discovered defect must be remedied in order to avoid having the title declared invalid. Generally speaking, this is accomplished through conducting a title search at the county recorder’s office. The county recorder’s office stores all of the records for real estate transactions; as such, a search should reveal the true owner of the property in question.
A title search can be conducted by a title company. They will go to the county land recording office to review deeds associated with the property, and will also search what is known as the grantor-grantee index. This index consists of an index of grantors, or sellers, and includes the names of all parties who have sold the property. The other list is an index of grantees, or buyers, which provides the names of all individuals who have purchased the property. The title company will also conduct a search of court records in order to determine if there are any liens or judgments against the property.
The process to remove a cloud on the title depends on the specific type of defect. Property liens are remedied by paying off the debt held by the lienholder, while improper descriptions of the property can be fixed by asking a court to reform, or modify, the terms of the deed. Mortgages can be effectively “cleared” by the owner when they obtain a document known as a release of mortgage; then, they would need to record that document with the land records office.
If a title search does not clarify the situation and suggest a remedy, defective title disputes may be resolved through what is known as filing a quiet title action. Quiet title proceedings will be further discussed below, but is essentially a court proceeding to clear the clouds on title.
More extensive legal action may be necessary in order to solve a clouded title. An example of this would be if the dispute involves the ownership of property, such as an inheritance dispute. Such circumstances would require resolution through a civil lawsuit. Clouded titles could also be the subject of lawsuits for damages if the defective title has caused one party a loss of profit, such as on a sale of the property.
How Is a Quiet Title Action Initiated?
The party who is having their ownership disputed may need to take legal actions in order to end the dispute, as well as reestablish their right to the title. This legal action is referred to as an action to “quiet title.” When a court of law considers a quiet title lawsuit, the goal is to remove the other party’s claim so that the title is once again free and clear.
A quiet title action generally involves a court analyzing the title issues and proposing potential resolutions. An example of this would be if a judge orders one party to pay property taxes as a means of clearing the title. Any prescribed resolutions will depend on the nature of each individual title dispute. To simplify, a quiet title action is a lawsuit which requests that a court determines who the property’s valid owner is.
To reiterate, the title owner should first check all necessary records in order to determine the exact boundaries and description of the property. Doing so helps ensure that they understand what exactly they own, and why there might be a dispute. Next, the title owner should file a complaint for action to quiet title in the appropriate court. The appropriate court will be in their jurisdiction.
This complaint should include the following information:
- A description of the title owner’s claim to the property;
- A description of the nature of the dispute to the title;
- Names of any parties disputing the title, along with a description of why they are doing so; and
- Service to any person party to the action to quiet title.
This process can take up to six months, depending on the complexity of the case as well as how the jurisdiction handles such legal action.
Do I Need an Attorney for Cloud on Title Issues?
If you are facing issues regarding a cloud on title, you should consult with a real estate attorney. Because laws regarding real estate and cloud on title can vary by jurisdiction, a local and experienced real estate attorney will be best suited to understanding how your state’s specific laws will affect your legal options.
An experienced attorney can also help you initiate a quiet title action in order to resolve the cloud on title issue. Finally, an attorney will also be able to represent you in court, as needed.