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What happens when a cloud appears on the title of a property? The Consequences of a Cloud on Title.
Updated: Nov 8, 2022
What is a cloud on title?
A cloud on title is generally defined as any encumbrance or condition which affects or impairs the title to real property. In other words, it's anything that would make someone hesitate to accept the property in its current state. A cloud on title can be created by a number of things, including but not limited to: mechanic's liens, outstanding mortgages, judgments, and tax liens.
While a cloud on title does not necessarily mean that the property is unsellable, it does make it more difficult to sell. Most buyers will want reassurance that any clouds on the title will be cleared before they're willing to purchase the property. As a result, sellers with properties that have clouds on their titles may find themselves having to offer significant discounts in order to entice buyers.
How to Remove a Cloud on Title
The first step in removing a cloud on title is to identify the source of the problem. Once you know what's causing the encumbrance, you can begin taking steps to remedy the situation. The most common way to remove a cloud on title is by paying off any outstanding mortgages, judgments, or tax liens. This will clear the way for you to sell the property without issue.
If you're unable to pay off the encumbrance yourself, you may be able to work with the party who placed the lien on the property in order to come up with an alternate solution. For example, they may be willing to agree to a payment plan or release the lien entirely if you're able to show that doing so would not cause them financial hardship. However, it's important to note that this isn't always an option—sometimes, the only way to remove a cloud on your title is by selling the property and using the proceeds of the sale to pay off what you owe.
So, what happens when there is a cloud on title?
A cloud on title can make it difficult to sell a property, but it's not necessarily a death sentence for your real estate ambitions. By understanding what causes clouds on titles and taking steps to remedy the situation, you can clear your title and move forward with your sale—even if it takes a little extra effort.
If you have any other questions about real estate and title companies, contact our team!
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