What Is a Defective Title?
The term “defective title” refers to an impaired title on a piece of property or other asset. The defect or impairment on the title can be in the form of a lien, mortgage, judgment, or other type of encumbrance. Because other parties can lay claim to the property or asset, the title cannot be legally transferred to someone else.
Defective titles are also called bad titles.
- A defective title is a title that is impaired with a lien, mortgage, judgment, or another claim.
- Defective titles are considered unmarketable, so the asset in question cannot be transferred or sold legally.
- Any encumbrances on a defective title must be cleared before the owner can sell the asset.
- A property owner who tries to sell an asset with a defective title may either be liable for any damages or lose the title altogether.
Understanding Defective Titles
“Title” is a legal term referring to the ownership of a tangible asset, such as a vehicle or a piece of real estate, or certain intangible assets, such as trademarks. Having a clear title is necessary if the owner of the property wants to sell it. But a title is considered defective when some type of black mark is recorded against it.
Types of Title Defects
Title defects often come in the form of liens, mortgages, or judgments. Defective titles may also include other claims, such as when a third party tries to establish an estate right title or an interest in opposition to the owner’s claim to the property. The title may also be defective if the proper procedures for filing real estate documents were not followed. Other issues that may cloud a title include:
- Inconsistencies between the wording of a deed or a certificate of title and local legal standards
- Wording that makes the true identity of the property owner unclear
- Missing signatures of a spouse or other co-owner
How Are Defective Titles Remedied?
A defective title is considered unmarketable. This means that the title—and therefore, the property—can’t be legally transferred or sold to another party until the defect is fixed.
If the titleholder wants to be able to do anything with the asset, they must first take care of any and all encumbrances. This can happen with any type of title, including quitclaim deeds, which can transfer ownership of an asset even when it’s not sold.
For example, a homeowner cannot sell a home if there is a tax lien on the property. They would have to take care of the outstanding taxes to remove the lien and go through with the sale. If the titleholder decides to sell an asset with a defective title, they may be held liable for any damages as a result. The seller may also lose all rights to the title itself.
If a property’s ownership is in question, the owner can hire a title company or an attorney to perform a title search. If that proves to be inconclusive, the property holder can pursue legal action. This is called a quiet title action, and it puts the decision of determining the true titleholder in the hands of the court.