Cloudy title is one of those terms that you don’t hear much about until it happens to you. And when it happens to a buyer or a seller, it can quickly end a sale right before it’s ready to go through. To protect yourself as either a buyer or a seller, it’s important to understand what a cloud on a title is, how to keep yourself from having one, and what to do if you discover the house you want to buy or sell in has a cloudy title.
WHAT IS A CLOUDY TITLE?
A cloudy title – also known as a cloud on title – is a document, lien, claim, or any other encumbrance that can invalidate or impair the title to a property, or that may make that title doubtful. A cloud on title typically occurs when there are unresolved issues regarding a property, such as foreclosure proceedings that were begun prior to a property being sold, or there might be liens from lenders or contracts to which the property owner agreed.
If the property’s seller didn’t pay for contracted construction or development work, the property also may have a mechanic’s lien. This type of lien stays in place until all labor and materials costs have been resolved, either by repayment of the debt or some other legal action.
In cases where a property was received by the seller in an estate or inheritance, probate issues also can cause a cloudy title. These issues arise if a property owner passed away without clearly defining who the property should go to, or if there are missing documents – such as death certificates – that throw ownership of the property into question.
Another, less common, situation that can cause a cloud on a title is fraud. If someone created a false deed that was recorded as a real one, it can throw into doubt who actually owns a property.
HOW CAN I PROTECT MYSELF FROM CLOUDY TITLE AS A SELLER?
If you’re selling a property, the best way to know whether or not you may have a cloud on your title is to have someone perform a title search prior to you listing the property for sale. In Texas that is hard to do sometimes. Not all title companies will perform title research due to some law changes in the state. The title companies only want to do the title research after a signed contract for sale is received.
A title search, which is usually part of most standard home sales, can show you whether there are issues with the title of the property. Knowing about them before you’re in the midst of the sales process gives you enough time to clear up any issues by getting quitclaim deeds, paying outstanding debts, or pursuing other legal action. The title company cannot convey clear title to a buyer without resolving all title issues prior to closing.
Starting this process before you’re sitting with an offer on the table can save you a ton of time and frustration.
HOW CAN I PROTECT MYSELF FROM A CLOUDY TITLE AS A BUYER?
As a buyer, there isn’t much you can do to predict whether or not there will be issues with a cloudy title on properties you’re looking to purchase. Part of the sales process will be having a title search done on any properties you’re considering purchasing.
Sometimes, a cloudy title can be easily overcome by having the seller pay any money owed to a contractor, for example, or getting a things such as heirship statements. However, not all situations are resolved this easily.
To protect yourself in the event of a cloudy title, don’t hinge all your property purchasing hopes on one single property. If you have any inclination there may be problems with the title to a property you’ve put an offer on, keep looking until you get the all-clear.
As a buyer, you are not liable for anything related to a cloudy title, but one certainly can derail your home purchasing plans without warning.