What Is a Defective Title?

The term defective title refers to an impaired title on an asset or a piece of property. The defect or impairment on a title can be in the form of a lien, mortgage, or judgment. 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.

Key Takeaways

  • 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.
  • Any encumbrances on a defective title must be cleared before the owner can sell their asset.
  • A property owner who tries to sell an asset with a defective title may be liable for any damages or may lose the title altogether.

Understanding Defective Titles

A title is a legal document that shows ownership of a tangible asset or other property such as a vehicle or a piece of real estate. Titles also show ownership of 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 there's some type of black mark recorded against it.

Title defects may 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 interest in opposition to the owner’s claim to the property. The title may also be defective if proper procedures for filing real estate documents are not followed. Other issues that may defect or cloud a title include:

  • inconsistencies between the wording of the title and local real estate standards
  • misworded title document that makes the true identity of the property unclear
  • missing signatures of a spouse or other co-owner

A defective title is considered unmarketable. This means the property—and therefore, its title—can't be legally transferred or sold to another party because of the defect. 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 titles—a deed that transfers ownership of an asset even when it's not sold. For example, a homeowner cannot sell a home if there is an outstanding tax lien on the property. They would have to take care of the outstanding taxes to remove the lien in order to go through with the sale. If the titleholder decides to sell an asset with a defective title, the seller may be held liable for any damages as a result. The seller may also lose all rights to the title itself.

In order to find a remedy to a defective title, a title search can be performed to determine the identity of the true owner. If that isn't sufficient or proves to be ineffective, the property holder can pursue legal action. This is called a quiet title. This action puts the decision of determining who the true titleholder is in the hands of the court.

It's important to conduct a title search to determine the true identity of the owner of a defective title.

Special Considerations

A missing deed or one that was destroyed may be a contributing factor in rendering a title defective. The deed may also be inaccurate or insufficient in its description of the property. There may also be stipulations that can affect ownership of the property such as a piece of property that's under an estate contract. There may be issues with the title not being an absolute title. Rather, it may be a registered possessory lien, which refers to land ownership without the deed, or a qualified title, which means there are defects in the title that include legal restrictions.