The term “cloud on title” is used in relation to real estate laws. Cloud on title is used to refer to any defect or irregularity with the title of a specific item of real estate. A cloud could be any defects or legal issues that could cause problems in regards to ownership, when the title is being passed from one owner to another. A cloud on the property’s title could reduce the overall value of the property, as these could create additional expenses related to the sale or transfer of the property.
Cloud on title is often used interchangeably with other terms, such as defective title or title defect. A defective title or title defect simply means that the property’s title is not marketable. The title may be declared invalid, which could cause confusion in regards to the true owner of the property. A defective title generally indicates that the property being sold by a party who claims to have a clear title, is actually owned by another party. Alternatively, it could also mean that there was a failure to comply with local real estate documentation laws.
A cloud on title is typically discovered when conducting a title search. Some examples of issues that could be considered a cloud on title include but may not be limited to:
- Issues with wording in the document, as in the wording does not comply with real estate standards for the area;
- Improper recording of ownership, or chain of title disputes;
- Unpaid liens on the property, as the title must be free of encumbrances in order to be marketable;
- Failure to include the signature of a necessary party, such as a spouse;
- Unpaid property taxes; and/or
- A pending lawsuit or other legal proceedings involving the property, such as a zoning ordinance issue or a private civil dispute.
How Are Title Disputes Resolved?
Clouds on titles must be fully resolved before a real estate transaction can occur. If a defect has been discovered, it must be remedied in order to avoid having the title declared invalid. Generally, this may be accomplished through conducting a title search at the county recorder’s office. As this particular office stores all of the records for real estate transactions, a search should reveal the true owner of the property in question.
If a title search does not clarify the situation, defective title disputes may be resolved through what is known as filing a quiet title action. Quiet title proceedings involve a court analyzing the title issues and proposing potential resolutions. An example of this would be if a judge orders a person to pay property taxes in order to clear the title. Another example may be if a judge orders a party to transfer and record the title according to the proper county record statutes, if improper recording was the issue. Any resolutions issued in response to the issues will depend on the nature of each individual title dispute. A quiet title action can be summed up as a lawsuit requesting that a court determines who the property’s valid owner is.
More extensive legal action may be required to solve a clouded title. An example of such circumstances would be if the dispute involves the ownership of property, such as an inheritance dispute. Such an instance would require resolution through a civil lawsuit. Clouded titles may also be the subject of lawsuits for damages if the defective title has caused one party a loss of profit on a sale.
How Is a Quiet Title Action Initiated?
As previously mentioned, the title owner should first check all necessary records to determine the exact boundaries and description of the property. This is to help 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 in their jurisdiction.
The complaint should include:
- A description of the title owner’s claim to the property;
- A description of the nature of the dispute to the title, which is the reason for the quiet title action;
- The naming of any parties disputing the title, and a description of why they are doing so; and
- The service to any person party to the action to quiet title.
The quiet title process can take up to six months, depending on the complexity of the case. This timeframe is also dependent upon the jurisdiction.
Do I Need an Attorney for Cloud on Title Issues?
Clouded titles can not only hinder or delay real estate transactions, but may also lead to additional legal issues. If you are facing issues with a defective title, you should consult with a skilled and knowledgeable real estate attorney. An experienced real estate attorney can educate you on your jurisdiction’s specific laws and statutes, as well as help you initiate a quiet title action to resolve clouded title issues. Additionally, an attorney can represent you in court as necessary.