DEFINITION of Clear Title
A clear title (also known as a "clean title," "just title," "good title" and "free and clear title") is a title without any kind of lien or levy from creditors or other parties and poses no question as to legal ownership. For example, an owner of a car with a clear title is the sole undisputed owner and no other party can make any kind of legal claim to its ownership.
BREAKING DOWN Clear Title
A clear title is necessary in any real estate transaction. Title companies must do a search on every title in order to check for claims or liens of any kind against them before they can be issued. Erroneous surveys and unresolved building code violations are two examples of blemishes that can make a title "dirty."
Why a Clear Title Is Needed for Property Sales
Real estate transactions require a clear title to firmly establish who the owner of the property is, any outstanding financial responsibilities attached to the property, whether the owner has the right to sell the property and who the new owner of the property will be. The sale of a property can be disputed if legal ownership is not represented through a clear title.
Complications can arise in particular with older properties where 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. Their rights as partial owners may have passed on to their descendants who might not be aware of this circumstance. Ownership might have been transferred to a trust or other body that has some legal claim to the property. This is why title searches are performed to identify such issues before a potential buyer has committed funds to acquire a property.
Possession of a clear title is also important to prevent instances of fraud. It is 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.
The presence of liens can also create a cloud on title and hinder a sale from proceeding. The current owner may still owe payments on an outstanding mortgage or owe contractors for refurbishment work they performed on the property. A property could potentially be sold while liens are active. The title would not be clear and the new owner would then be held responsible for resolving those liens.