What is 'Bad Title'
A bad title is a title that does not grant ownership to its holder due to unsatisfied legal or financial problems. Almost always associated with real estate, a bad title can prevent the titleholder from selling the asset.
BREAKING DOWN 'Bad Title'
A bad title is a term for a title that stops the titleholder from legally transferring an asset. A title may be a bad title for various reasons. The term most commonly appears in real estate, and in that case the title may be a bad title due to a lien on the property, back taxes, or failure to correct a building violation. In order for the titleholder to legally sell their property they must resolve any problems associated with the title. If a titleholder sells or transfers a bad title, the receiving party does not legally own the property. In other words, for a bad title to move in any way from one party to another, its status as a bad title must be eradicated first.
How does a title become a bad title?
A title is a legal document that espouses an individual's right to ownership and possession of an item that can be recognized as being owned or belonging to a person or a thing. In a government system that acknowledges individual property rights, an individual can have ownership over an expansive amount of tangible and intangible property. Titles can be obtained by purchase, descent or grant.
If you were to bid on a property and begin the mortgage process to buy that property, the mortgage company will run a title search as an obligatory part of the process. If in that process the property history has a record of unpaid taxes or other unpaid liens, an incomplete certificate of occupancy, written deeds, any unresolved legal debts, or building code violations, the title will then be deemed a bad title and can no longer be legally sold, and you would not be able to purchase that property at that time. Bad titles can be rectified through various legal processes. In most cases bad titles result from financial liens on the property, and thus can be removed by paying whatever financial lien is placed on that piece of property.
Bad Titles and Real Estate
Real estate investors should make sure that a property does not have a bad title before proceeding with any purchase. Homes in foreclosure, for example, may have a number of outstanding issues. Buyers may consider purchasing owner’s title insurance to protect themselves against unforeseen claims against the title.