Clear TitleCASAPLORERTrusted & Transparent
What You Should Know
- A Clear Title is a property ownership title that implies that there are no legal claims outstanding against the property.
- Without a clear title, a seller may find it difficult to sell their property.
- Lenders look at the title of the property before approving a mortgage, and they will not approve the mortgage request if the title is not clear.
- There are multiple reasons why a title may not be clear, and some issues may be resolved easily while others may require a costly process involving lawyers.
What is a Clear Title?
A Clear Title, also known as Just Title, is a home ownership title that has no liens or levies from creditors or any other parties that would make a property ownership unclear. When the title is not clear, it is said that the title has clouds on. An owner of a property with a clear title possesses an undisputable ownership of the property, and no other party can make any legal claims to ownership of the property. A clear title is necessary for real estate transactions because it establishes who the sole owner of the property is. Without a clear title, in most cases, the owner does not have the right to sell the property. To see whether there are any claims or liens outstanding on the property, an owner may request title companies to do a title search.
|When Is the Title Clear?|
|Clear Title||Clouds On Title|
|Property Has a Single Owner||Property Was Bought Jointly|
|Property Has No Outstanding Financial Obligations||Property Has Liens or Levies Outstanding|
|Property Is Not Owned by a Trust||Property Is Owned by a Trust or a Holding|
Most conventional real estate transactions imply a clear title when it comes to ownership title transfer. On the other hand, when a buyer purchases a foreclosed property, it is important to check for any outstanding liens or encumbrances to see whether the buyer has to take an action to receive a clear title on the property. Law firms that focus on real estate transactions can provide a search of any outstanding liabilities that must be resolved before the buyer can receive a clear title on the property.
How a Clear Title Works
A clear title shows that there are no financial responsibilities outstanding on the property. Without a clear title, the owner may not be able to sell the property. The sale of the property can be legally disputed if the seller does not possess the clear ownership title to the property.
The presence of liens or encumbrances can invalidate the clear title of the owner. For example, if there is an unpaid mortgage on the property, it is considered a lien on the property. If the seller manages to sell the property, the lender will still have the lien on that property. If the mortgage is not paid off, then the new owner has a risk of losing the property. If there are any liens outstanding on the property, then the ownership title is not clear, and the new owner is responsible for resolving the outstanding liens. In some cases, the buyer can purchase an owner’s title insurance to protect themselves against any unresolved liens.
When the title is clear, the deed can be registered to the homeowner’s name. The deed is a legal document that outlines who is the owner of the property. During a conventional real estate transaction, the ownership title must be clear before the ownership changes hands. It is still possible to sell a property with unresolved liens, but it is unlikely that the buyer will be able to get a mortgage on that property. The buyer will not be approved for the mortgage because the banks thoroughly analyze the property and look whether the title is clear. If the title is not clear due to liens outstanding, the lender will not approve the mortgage because the buyer may not be able to afford the mortgage with the financial burden of unpaid liens.
Why the Title May Not Be Clear
There are different reasons why an owner may not possess a clear title on their property. Even if the current owner lives in the house, it does not necessarily mean that they have a clear title on the property. Sometimes they may not even realize that the title is not clear. When they try to sell the property, the buyer may face some issues with the title, which means that it is not clear who has the legal claim to the property. The title may not be clear because of the following reasons:
A present lien on a property means that the property is used as a collateral for a loan. A seller of a property may have a mortgage on the property, home equity line of credit, or a home improvement loan where the property is used as collateral. In this case, the lender has a legal claim to the property, and before selling the property, the owner must ensure that there are no outstanding liens present.
A levy is a financial claim made against the property when the owner has unpaid taxes or loan debt. Unlike liens, a lender or a tax authority that has a levy on the property can legally seize the property to pay the outstanding debt.
An heir is a person who is legally entitled to the property after one person’s death. It could be the case that a previous owner granted a portion of the property to another person, an heir, who never took an active role as an owner. These rights of an heir may also have been passed to their children who may not be aware of the situation. On the other hand, if the heir is the one who is selling the property, but they never registered the deed to the property, the deed may still be registered on the original owner. In this case, the title is not clear, so the heir must transfer the deed to themselves before selling the property.
Instances of fraud also happen sometimes. A person can register the deed on the property in their name fraudulently. This might be done to sell the property by the fraudster. In this case, the title of the current owner may not be clear either. This is a tricky situation that might require a thorough check of records by real estate lawyers and law enforcement.
If a married couple who own a property jointly, decides to separate, the ownership title may not be clear for the property without further resolution. If a married couple bought a property jointly and decided to separate without filing for a divorce, they both are legally entitled to the property. In this case, the title is not clear as two people have the entitlement to the property.
- A Trust
The title may also not be clear if the ownership has been transferred to a trust or any other holding company. A title search, in this case, would indicate who has the legal claim to the property.