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Clearing a cloud from a title

| Jan 11, 2021 | Real Estate Transactions |

One of the most important documents when someone purchases real estate is the title. The seller will transfer this document to the buyer’s name at closing.

Before potential buyers get to that point, though, they need to make sure there are no clouds on the title.

What is the title?

Some people confuse the title with the deed. Policy Genius explains that the deed shows the transfer of the title to the buyer’s name from the previous owner’s name. The title itself proves the new owner’s right to ownership of the property. The chain of title shows all the times the title has updated from owner to owner.

What is a cloud?

The cloud is a problem with the title that could cause issues with ownership, cost the buyer quite a bit of money, or both, according to The Motley Fool. Types of clouds that prevent the transfer from one owner to the next include the following:

  • Property is in foreclosure proceedings
  • Inheritance issues such as will challenges, missing heirs or unclear transfer of property
  • Fraudulent deed

The property may have a lien on it, such as unpaid construction costs, an outstanding mortgage or taxes. In some cases, the seller will have to take care of the debt before selling it. In other cases, the buyer will become the debtor when the deed transfers.

What can clear a cloud from a title?

If the issue is ownership and no financial transactions are necessary, a quitclaim deed can clear the title. The owner can simply sign this type of deed and transfer his or her interest in the property to the new owner.

A quiet title action resolves clouds through litigation. The court settles disputes over the title, removing others’ claims or objectives regarding the property. For example, the quiet title action may resolve a boundary dispute or correct survey errors. It may also resolve issues with a lender, with tax matters or with competing claims of interest.

By doing a thorough title search and purchasing title insurance, the buyer may feel reasonably comfortable that clouds will not be a problem.