What Is a Clear Title?
A clear title is a title without any type of lien or levy from creditors or other parties that would pose a question as to legal ownership. For example, an owner of a home with a clear title is the sole undisputed owner, and no other party can make any kind of legal claim to its ownership. A clear title is also called a “clean title,” a “just title,” and a “free and clear title.”
A clear title is necessary for any real estate transaction because it firmly establishes who is the property owner. Title companies must do a title search to check for claims or liens of any kind against a title before it can be deemed clear. Erroneous surveys and unresolved building code violations are two examples of blemishes that can make a title “dirty.”
- Clear titles are titles without any type of lien or levy that questions the legal ownership of the property.
- The presence of liens can create a cloud on title, meaning that a claim or an unreleased lien invalidates or impairs the owner’s title to the property.
- Title issues can arise in situations of separation, divorce, or heirs not being properly documented.
How a Clear Title Works
A clear title helps to show whether there are any outstanding financial responsibilities attached to the property and is necessary to demonstrate that an owner has the right to sell the property. The sale of a property can be disputed if legal ownership is not represented through a clear title.
The presence of liens can create a cloud on title, which is when a claim or an unreleased lien invalidates or impairs the owner’s title to the property. For example, the current owner may still owe payments on an outstanding mortgage or owe contractors for refurbishment work they performed on the property. The title would not be clear, and the new owner would then be held responsible for resolving those liens.
Once a title is cleared, the deed can be registered in the homeowner’s name. The deed is the legal document showing who owns a property. If someone is buying a home, the title must be clear before the new owner’s name can be put on the deed.
It’s important to note that a property could potentially be sold while liens are active. The law doesn’t require liens to be removed before the sale of a property. However, the buyer wouldn’t be able to get a mortgage or home equity loan, because the bank would research and discover the past liens, which would have to be cleared for the financing to go through.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
There are many reasons why a title search might come back listing the title as unclear. Just because someone currently lives in a home doesn’t mean that the home has been titled or vested to that person. When it comes time to sell the home, the buyer can run into problems with the title, meaning it’s unclear who owns the property.
Complications can arise with older properties where the heirs of a prior owner may still have some claim to the real estate. For instance, a prior owner may have granted a portion of a property to an heir who never took an active role as an owner. The said heir’s rights as a partial owner may have passed on to their descendants, who might not be aware of the circumstance.
Title problems can also arise if the heir to the property never filed the deed with the county clerk’s office to transfer ownership. When the heir goes to sell the property, title problems will occur, as the deed would still show the family member who willed the property to the heir.
Possession of a clear title is also important to prevent instances of fraud. It’s possible that a false deed may have been entered into the public record. A fraudster might attempt to use a false deed to engage in the illegal sale of a property.
Separation or Divorce
Title problems can occur in situations in which a couple separated but never went through divorce proceedings. If the couple owned the home jointly and one person moved out following the separation, they would still both own the house without a divorce. As a result, when the person living in the home goes to sell the house, title problems would arise because two people would be listed on the deed.
Ownership might have been transferred to a trust or some other body that has a legal claim to the property. This is why title searches are performed, in order to identify such issues before a potential buyer has committed funds to acquire a property.