A cloud on a title is a popular term in the real estate business and it comes from the Latin terms caveat emptor. It technically signifies to proceed with caution as it refers to a deed, which has been recorded but includes something unusual that requires close inspection on the part of the potential purchaser before accepting. Usually, the presence of a cloud on a title will allow the purchaser the option to back out of a contract and often the cloud can be removed without difficulty by executing a document to prove a debt had been paid or corrected.
A cloud on a title can mean several things, but is usually considered a title defect of some kind. A cloud can indicate the wrong spelling of a property’s address in a deed conveying title or it can mean the repayment but failure to officially record a mortgage lien. Failure to convey certain property rights (such as mineral rights) to the former owner of a property or some problems in establishing the chain of ownership can result in a cloud in a title.
Titles to be transferred that include a cloud will not be insured, but sometimes a title company will insure ownership of a property surrounding a cloud. A cloud on a title can be easily deleted by the proprietor of the property initiating a quitclaim deed or a quite title proceeding. This calls for a document that proves the debt or error related to the title has either been paid or corrected.
Usually minor, the issues concerning a cloud on a title in most cases are easily solved. When property is purchased via a mortgage, occasionally clouds on title can be a little more complex. The mortgage company is duty bound to notify the local record office of paid liens when the mortgage has been paid in full. If this does not happen, and if the owner attempts to sell the property, the procedure becomes clogged as the official documentation search shows that the property is still under a mortgage. Correcting the error as soon as possible must be a top priority.
By filing the proper documents with the local records office, in the end all clouds on titles can be effortlessly amended. The deed is considered complete and the cloud on the title officially corrected as soon as the records office receives and approves the proper documents.
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