Cloud on title

In United States property law, a cloud on title or title defect is any irregularity in the chain of title of property (usually real property) that would give a reasonable person pause before accepting a conveyance of title. According to Investopedia, a cloud can be defined as: "Any document, claim, unreleased lien or encumbrance that might invalidate or impair the title to real property or make the title doubtful. Clouds on title are usually discovered during a title search."[1] Clouded title can thus be contrasted with a clear title, which indicates that a property is unencumbered.

A cloud on title may reduce the value and marketability of property because any prospective buyer aware of the cloud will know that they are buying the risk the grantor may not be able to convey good title. Often, the discovery of a cloud on title will provide the grantee a reason to back out of a contract for the sale of real property. Some documents that affect title may be considered clouds, but nonetheless are unlikely to affect marketability or resale, such as with covenants, conditions and restrictions in a homeowners' association or subdivision.[2]

Examples of clouds on title include a property's address being misspelled in a deed conveying title, a mortgage lien whose repayment hasn't been officially recorded, a deed which has been signed but hasn't been properly recorded, an easement that has not been properly recorded, unpaid property taxes, a failure to transfer property rights (such as mineral rights) to a former owner of the property, and a pending lawsuit before a court of law over ownership to the property. The usual remedy for a cloud on title is to file a civil action to quiet title which resolves the outstanding or unresolved cloud.

Clouded title can cause delays or denials in receiving certain forms of disaster recovery aid, especially longer-term rebuilding assistance. This can be a more serious problem for low-income families who over time might not have been able to afford lawyers and legal fees for probate, and who can face even worse financial problems in the wake of a disaster. This has led some states to make available low-cost mechanisms to transfer title.[3]

See also

References
  1. Staff, Investopedia (16 May 2007). "Cloud On Title".
  2. "A Cloud On A Home`s Title Can Make It Unmarketable".
  3. How Clouded Titles Affect Low-Income Victims Of Disasters


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