How does a Cloud on Title Affect the Purchase and Sale of Property?

Updated on June 5, 2024

Buying or selling property in California can be a complex process that involves various legal considerations.

One such consideration is the concept of  a “cloud on title,” which can impact both buyers and sellers in real estate transactions.

Understanding what this form of title issue is and how it can affect a property transaction is essential for anyone involved in buying or selling property in the state.

What is a Cloud on Title?

A cloud on title refers to any claim or encumbrance that may affect the ownership of a property, creating uncertainty or ambiguity about the property’s legal ownership or impairing legal title.

This can include:

• Unreleased mortgages
• Forged documents
• Missing heirs or unknown ownership claims
• Unrecorded or recorded easements or encroachments
• Boundary disputes
• Unpaid taxes or liens

How Cloud on Title Works

A cloud on title works by casting doubt on the validity of the property’s ownership.

It can create challenges for sellers in transferring clear title to buyers and may lead to delays or even cancellation of the sale.

A few Examples of Clouds on Title:

1. Lis Pendens: A notice that indicates there is a lawsuit pending that may affect the title to the property.
2. Mechanic’s Lien: A claim placed on the property by a contractor or supplier who has not been paid for work or materials.
3. Unreleased Mortgage: When a mortgage has been paid off but the lender has not recorded a satisfaction of mortgage.
4. Forgery or Fraud: Documents in the chain of title that are forged or fraudulent.
5. An Easement:  Someone other than the property owner having the right to use a portion of the property.
6. An Old Judgment:   A judgment lien against the seller or former owner of the proeprty
7. A Tax Lien:  This could be a lien against an individual for unpaid income taxes.

Impact on Sellers

A cloud on title can make it difficult for sellers to transfer clear title to the buyer, leading to delays or cancellation of the sale.

Sellers can remedy this by working with a real estate attorney to identify the source of the cloud and take appropriate legal action to clear it.

Buyers may be hesitant to purchase the property which can lower the property value.

Lenders also may be reluctant to provide financing for a property with a cloud on title, making it more difficult for the seller to sell the property.

Impact on Buyers

Delays caused by cloud on title can effect buyers as well.

It presents uncertainty about the property’s ownership and may affect the buyer’s ability to obtain financing or title insurance.

Buyers may be able to remove a cloud on title by working with a real estate attorney to address the issue.

How a Real Estate Attorney Can Help

A real estate attorney can help sellers and buyers navigate the complexities of title issues. They can:

• Identify and understand clouds on title
• Advise on the best course of action to clear the cloud
• Ensure that all necessary legal documents are properly prepared and filed
• Facilitate the transfer of ownership

The attorneys at Schorr Law have helped with various purchase and sale cases across California and are well versed with the processes and procedures resolving property title issues.

Call our office today at 310-954-1877; you can also send a message or schedule a consultation here for more information.