Under real estate laws, the term “cloud on title” refers to any defect or irregularity with the title to a specific item of real estate. These are any defects or legal issues that could cause problems with ownership when title is passed from one party to another. A cloud on the title can reduce the overall value of the property, since these can create additional expenditures in relation to the sale or transfer.
The term “cloud on title” is used interchangeably with other terms, such as “defective title” or “title defect.” In many cases, a real estate contract will permit a party to back out of the deal if there are any issues with a clouded title.
A cloud on title is usually discovered during a title search. This type of search may uncover issues that can be considered a cloud or defect, including:
- Chain of title disputes (for instance, issues with an improperly recorded real estate document)
- Unpaid liens on the property
- An encumbrance on the property such as an easement
- Unpaid property taxes
- A pending lawsuit or legal proceeding involving the property, such as a zoning ordinance issue or a private civil dispute
These issues must be fully resolved before a real estate transaction can occur.
Title disputes are usually resolved through legal proceedings known as quiet title proceedings. These proceedings are where the title issues are analyzed by the court and prospective resolutions are proposed. For instance, the judge might order a person to pay property taxes, or they might order a party to transfer and record the title according to proper county record statutes. The resolutions issued will all depend on the nature of the dispute.
In some cases, more extensive legal action is needed to resolve the clouded title issue. For instance, if there is a dispute over ownership of the property (such as in an inheritance dispute), this may require a civil lawsuit for resolution. Lastly, clouded titles can also be the subject of lawsuits for damages, where the title defect has caused one party a loss of profit on a sale.
Clouded titles can hinder or delay a real estate transaction, and can lead to many other legal issues. You may need to hire a real estate attorney in your area if you need any assistance with a defective title issue. Your lawyer can provide legal representation during court proceedings, and can research the laws to determine your options. Also, if you need to file a lawsuit for damages, your attorney can assist with those types of processes as well.