By Jasmine Eddy | 07.06.20 8:00 AM
If we think of a smooth, uneventful real estate transaction as a sunny day, then anything that hinders the effortless transfer of title, would be deemed a cloud. “Clouds” are any claims, unreleased liens, or documents that appear on a property’s title record.
Property buyers prefer clear titles and clouds makes property title transfer more difficult. Additionally, clouds could invalidate the legal ownership of the property. A clear title is a record that does not have legal claims or ownership disputes from other parties.
Examples of Clouds on Title
The presence of clouds diminish the value of the home. Additionally, the new property owner would be responsible for the debts if they decide to purchase. In many cases, clouds may deter potential buyers.
Some common clouds on title records are as follows:
- Mechanic’s or construction liens
- Clerical or filing errors
- Unknown heirs
- Fraud and forgery
- Encroachments or easements
- Boundary disputes
- Improperly probated wills
- False representation of marital status
- Unreleased deeds of trust
What Causes Clouds on Title?
Clouds are often created when creditors file a claim on the property or when paperwork regarding the property is misfiled, misplaced, or omitted. For example, mechanic’s liens are common liens that are filed against a property’s title.
If a contractor is hired to complete work on a property, and they are not paid in full upon completion of the project, contractors can file a mechanic’s lien on a property through the county recorder’s office. This lien allows the contractor to recover the unpaid balance.
How to Find Clouds on Title?
How to Avoid Clouds on Title?
How to Remove the Clouds on Title?
The process of removing a cloud on title varies. Some are easier to remove than others. For example, to resolve a mechanic’s lien, the homeowner must contact the contractor to pay their balance. Then, the contractor will remove the lien. Similar liens, such as mortgage and tax liens, can be resolved this way.
Real estate agents need to be proactive when working with homes that have clouds on the title. For buyer’s agents, be sure to address the clouds on title. Leverage this as a negotiation strategy.
For example, informing the seller, “I have a buyer who is interested in your home but they noticed there are clouds on the title. If they are removed, I have a buyer for you!” may motivate them to clear the home’s title in order to secure the sale.
For seller’s agents, be proactive and take a look at your client’s title report early on in the process. It is possible that the owner is not aware that their property has clouds. Therefore, checking with the title company is very helpful. If there are clouds on the title, agents can work with sellers to make a list of the fixable clouds. Together, they can come up with a strategy to resolve them.