Cloudy title is a term that often goes unnoticed until it affects a buyer or seller, potentially derailing a sale just before closing. To safeguard yourself in either role, it’s crucial to grasp the concept of a cloudy title, ways to prevent it, and steps to take if you encounter this issue with a property in Portland.
Let me give you an example. We recently did a deal where the personal representative was selling us her brother’s house, and once we pulled the title report we found out that there was a lien on the title from a company that paid the deceased brother $5,000 several years prior, and in exchange they wanted $20,000 when the house ultimately sold. Since this clouded the title, it needed to be paid off through the close of escrow in order for the transaction to proceed.
WHAT IS A CLOUDY TITLE?
A cloudy title, also referred to as a cloud on title, pertains to any document, lien, claim, or encumbrance that could compromise or invalidate a property’s title, casting doubt on its ownership. This situation commonly arises from unresolved property issues, such as ongoing foreclosure proceedings initiated before a property transfer, existing liens from lenders, or contractual agreements binding the property owner.
In instances where the property owner fails to settle payments for contracted construction or development work, a mechanic’s lien may be in place until all financial obligations related to labor and materials are resolved through repayment or legal means.
Additionally, properties acquired through inheritance or estate transfer can face cloudy title issues due to probate complications. These challenges emerge when property ownership after a decease lacks clarity or essential documents like death certificates are missing, raising uncertainties about rightful ownership.
Fraud represents another rare scenario leading to a cloud on title, where a falsified deed is recorded as genuine, casting ambiguity on the property’s true ownership. One way to minimize the risk of title fraud is through the use of a title monitoring software, such as Title Fraud Defender, which is based in Portland, OR.
HOW CAN I PROTECT MYSELF FROM CLOUDY TITLE AS A SELLER?
If you’re selling a property, the best way to know whether or not you may have a cloud on your title is to have someone perform a title search prior to you listing the property for sale.
A title search, which is usually part of most standard home sales, can show you whether there are issues with the title of the property. Knowing about them before you’re in the midst of the sales process gives you enough time to clear up any issues by getting quitclaim deeds, paying outstanding debts, or pursuing other legal action.
Starting this process before you’re sitting with an offer on the table can save you a ton of time and frustration.
HOW CAN I PROTECT MYSELF FROM A CLOUDY TITLE AS A BUYER?
As a buyer, unless you are a real estate professional, there isn’t an easy way for you to check whether there is a cloud on your title. Title companies have entire divisions whose job it is to look into records at a local, county, and state level to see if there are any encumbrances on a properties title.
One option to find out if there is a cloud on title, is to call a local title company and ask them to run a title search. There will likely be a charge for this work, as title companies typically only do this for properties that are involved in transactions that they are handling, since as previously stated there is a significant amount of labor involved in compiling a title report to see if there are any liens clouding the title.
There is a second option for you to obtain a title report, and it’s free … if you want to find out if your property’s title is clouded, you can call or email us here at Better Off Home Buyers. Because we do a lot of business with a particular title company in Oregon, they will often times pull title reports for us at no charge to keep our business. So let us know if this is the case, and we can reach out and try to get one.
What do you do if a title is cloudy?
Well, different types of clouded title require different solutions. If there is a contractor’s lien on title, this can often times be made to go away by paying money to said contractor. Contractors can put a contractor’s lien on a property when they haven’t been paid for work performed. If this is the case, then the contractor must be paid for the lien to go away. This can happen at any time, including on the closing date when the property is being sold. The title company will pay the contractor out of your proceeds.
Unfortunately, not all contractors liens are legitimate. Since the barrier to entry to becoming a contractor in the state of Oregon is very low, anybody can become a contractor, and then they can wield contractors liens like a weapon. If this is the case in your situation, and you find yourself on the receiving end of an unjust contractors liens, unfortunately you will not be able to sell the house until the lien is cleared. This can be accomplished one of three ways:
- Paying the lien through the close of escrow: This is the easiest solution, but might not be the cheapest. If the lien is for a significant amount, then you may want to consider the next option:
- Legal action: You can hire an attorney to combat the fraudulent claim. The attorney will attempt to get the lien stripped from the title. This can rack up costly legal fees and also drag out over time
- Pay extortion money to the contractor: Unfortunately, sometimes the best way to get a lien stripped and minimize your expenses is to negotiate with the contractor and make a payment to them to get them to lift the lien. You’ll want to make sure that you still get an attorney to draft the paperwork to make sure that the lien is lifted and that they do not put any new liens on the property.