The term “clouds on title” means any defect affecting clear title to a property found by examining the public records concerning that property’s history (or chain of title.)
A title agent examines county and municipal records and documents in the data information storehouses maintained by the title companies (known as “title plants”). The agent is searching for any cloud or defect that could lower the value or marketability of that title, by allowing a
prospective buyer to know they are taking a risk purchasing the property, as the grantor may not be able to convey a clear title.
Such defects or clouds may include a misspelled name, undisclosed heir, disputed boundary, unpaid tax bill, unsatisfied lien or a judgment or pending lawsuit against the property, among other hazards. Until such defects are remedied, the title cannot be considered clear and may postpone closing of the sales transaction or even cause the
buyer to back out and the transaction to fall through.
Title insurance protects you
To avoid any problems concerning the property’s title disclosed after the closing, title companies offer Owner Title Insurance policies, protecting buyers from financial loss in the case of something cropping up from the property’s history that had been missed in the title search. Title companies
will even accompany the insured to court in the event of a challenge to the title. A mortgage company will often insist on Lender Title Insuranc Policy to protect its own investment in case of such defect discovery in the future.
If a cloud or defect cannot be cleared, a lawsuit known as an “action to quiet title” may be brought in court to determine who really holds ownership of the title and “quiet” any further challenges or claims to the title.
More information about clouds on a title may be found at www.alta.org.