Purchasing real estate can be complex, especially when you encounter an unexpected and unwanted title issue during the transaction, such as a cloud on the title. A “cloud” is a problem that might negatively affect your ability to take legal ownership of the property. Therefore, a successful real estate deal depends on you being able to resolve the matter. Whether you are participating in a real estate transaction that involves a cloud on a title or another problem has arisen, an Arizona real estate lawyer can assist you.
Understanding Clouds on Titles to Real Estate
A cloud on a real estate title is an ambiguity, an error in public records, or another type of legal defect that obscures true ownership of the property. For example, if parties to a prior transaction involving the real estate did not use a title company, then old loans, liens, or easements might still exist on the records of the title to the property. In addition, a seller may have taken out a second or third mortgage on the property that remains unpaid. Issues such as these can prevent full legal ownership of the property from properly passing from one party to another.
Even if all parties agree that a creditor should have released a lien long ago, it is still necessary to remove the lien or cloud from the title to the real estate to ensure the proper transfer of ownership. Otherwise, the property remains subject to the lien, and the lienholder theoretically has an ownership interest in the property upon which they could execute and foreclose. If you don’t resolve the cloud on the title, you could face a dispute over ownership of the property in the future.
Identifying Clouds on Titles
The most effective way to identify any clouds on a real estate title before closing a transaction is to enlist the help of a title company to research the title to the real estate. The title company will provide a title insurance policy and will produce a report that you can have a real estate attorney review for potential clouds.
If you are purchasing property with a mortgage loan or another type of financing, the lender always will require that you purchase title insurance. However, even if you are buying the property with cash or not using financing, you still should obtain title insurance to avoid chain of title issues.
Resolving Clouds on Titles
If you discover a cloud on a title during a real estate transaction, you may have different options to resolve it. For instance, if a judgment lien exists that the seller paid off long ago, but the creditor neglected to release, you may need to contact the creditor to release the judgment. However, if a valid lien still exists on the property, the seller may need to pay the debt to satisfy the lien.
In some cases, eliminating the cloud on the title to real estate is more complicated. For example, a party may need to file a quiet title action or a lawsuit against former owners and lienholders to clear title to the property. The suit involves anyone with a potentially adverse claim to the property to get a court order showing that the present title holder has free and clear ownership of the property.
You may be able to resolve the cloud on the title without the time and expense of a quiet title action if you and the other potentially adverse parties can agree that you are the true and legal owner of the property. A quiet title action may be unnecessary if all parties agree to amend the deed and related documents. Resolving the matter by agreement also can remove the risk of you becoming liable for the defendants’ costs related to the action under A.R.S. § 12-1103.
Call Us Today for Assistance with Your Real Estate Transaction
The real estate attorneys of Provident Law have over 250 years of combined legal experience. We aim to build a relationship with you and our clients as we work with you through your most complex legal problems. Call us today at (480) 388-3343, or reach out to us online and see what we can do for you.