What Is a Clear Title in Real Estate Transactions?

A clear title is a great sign in a real estate transaction. It means the property title has no liens placed on it. Liens or levies from creditors or other parties could threaten your ownership or use of the property. Therefore, a clear title is necessary for any real estate transaction.  

What Is a Clear Title?

A clear title firmly establishes who the property owner is. Ideally, a single owner or owner(s) is stated on the property deed without any additional liens. If there are liens, or encumbrances, possible issues such as invalid or fraudulent deed transfers, boundary line disputes, or missing interest from a prior owner.

To discover whether the property title is clear, you'll need to work with a title company. Title companies conduct a title search that checks for liens or other claims of any kind against a title. A title could also be considered dirty or unclear due to unresolved building code violations, erroneous surveys, or complicated encumbrances.

The great news? If a title is clear, the homeowner is the undisputed owner, and there are no other legal claims of ownership on the property. 

How Does a Clear Title Work?

First, a property deed is a legal document showing who owns a property. When buying a home, the title must be clear to put the new owner’s name on the deed. If the property is sold with active liens, the new homeowner will be responsible for those.  

A title search will show whether there are any outstanding financial responsibilities attached to the property. If the previous owner had a mortgage, a lien on the property would need to be paid during the sale. However, if there are other liens, encumbrances, or issues that appear in the title search, they can create a cloud on the title. 

A clear title is necessary to demonstrate that an owner has the right to sell the property. Without a clear title, the owner's ability to sell or legal ownership could be disputed. For example, a claim or an unreleased lien could invalidate or impair the owner’s title to the property and, thus, their ability to sell. 

Why don't you want liens? First, a title claim or unreleased lien could invalidate or impair the owner’s title to the property. The most common lien you'll see is if the current owner still owes payments on an outstanding mortgage. 

However, if they have outstanding bills that they owe contractors for refurbishment work, there could be additional liens. If you purchase a property with these liens, you'll buy the title with the liens. In that case, you'll be the new homeowner responsible for resolving those past construction liens.

If the title search turns up issues, everything is not lost. The current homeowner will be responsible for clearing the title. Once a title is cleared, the deed can be registered in the homeowner’s name and ready for sale. 

Reasons Why a Property Title Isn’t Clear

There can be many reasons why a property title isn't clear, and you'll want to carefully understand the implications for your property transaction. Common title issues that a title search could turn up include a forged deed, undisclosed divorce, undisclosed tax liens, a disputed will, mechanic’s liens, or zoning violations. Here is an overview of common issues a title search might turn up. 

Fraud

Some fraudsters may create falsified documents or fraudulent titles to attempt to sell a property they do not own. In some cases, it’s possible that a false deed may have been entered into the public record. Any form of fraud is one of the biggest dangers to would-be homebuyers, and why you need to perform a title search with a trusted title company.

Heirs

One of the most common problems you could run into is with heirs who fail to update a deed. You might have title problems if the heir to the property never filed the deed with the county clerk’s office to transfer ownership. If the heir then lists the property for sale, the deed will still show the family member who passed away on the deed. To complete the sale, the heir will need to complete the filings to transfer the title to their name. 

In the case of older properties, you could also run into complications if the heirs of the prior owner have some claim on the property. For example, if the property originally belonged to a couple who granted partial ownership to their three children, and only one of the children later resided on the property, at some point in the future, the grandchildren of the original owners may all have a claim on the property. In some cases, descendants may not even be aware of the property. 

Trust and Will

If the ownership is transferred in a trust, will, or another body with a legal claim to the property, it can also present issues for the sale. Title searches can identify issues related to wills or trusts before a potential buyer has committed funds to acquire a property.

Separation or Divorce

If a couple separated but never went through divorce proceedings, it can create title issues. If the couple owned the home jointly, they would still own it without a divorce. If one person from the couple decides to sell the home, you'll face difficulties because two people will be listed on the deed. 

Undisclosed Liens

Undisclosed liens can create all kinds of title problems or make a title unclear. Construction liens, tax liens, judgment liens, mechanic’s liens, judicial liens, mortgage liens, child support liens, or possessory liens can all cloud a title. In addition, some homeowner's associations place a type of lien on the property that limits or restricts its sale or use. 

Zoning Violations

Zoning rules can limit property rights or use. For example, the house might be used as a residential property but zoned for commercial (or vice versa). If the house has specific code violations, it can lead to a municipal lien placed on the property. To remove this type of lien, the property must resolve the code violations and clear the issue with the municipality to make the title clear. 

How to Check if Property Title Is Clear

To check if a property title is clear, you can:

• Visit your local property records office to search for the title
• Do an online search for the property’s title history

These two options will tell you what’s in the official records, but they won’t tell you what isn’t there, including construction liens, building permits and zoning rules, which can limit property rights.

The most effective way to ensure that a property title is clear is to consult with a real estate attorney or title company who will have expertise in title searches. In some cases, an escrow agency can do the title search. You'll need to pay for the title search as part of the closing costs, but it is worth it to avoid all the issues listed above. 

Other Clear Title-Related Terms to Know

Here is a summary of title-related terms you'll need to ensure a clear title. 

Title Search

A title search checks whether a title is free and clear. It can be performed by a title company, real estate attorney, or, in some cases, an escrow company. Choose a reliable company with a good reputation to do your title search. 

Title Company

A title company's role in real estate transactions is to verify the ownership of the real estate. A title company is the best resource to perform a title search and confirm that a seller has the right to sell the property to a buyer.

Title Insurance

Title insurance protects you from problems with the ownership title when you buy real estate. As is clear from the above, this type of insurance is essential to protect you from preexisting problems like unpaid property taxes, fraud or forgery of previous paperwork, or a spouse or unknown heir who claims they own the property.

Tips on Securing a Clear Title

Don't underestimate the long-term complications of liens, encumbrances, or other issues on a property title. It's worth working with a well-reputed title company and real estate attorney to ensure a clear title or to clear any issues and facilitate the sale. Even if the title is clear, title insurance can help protect you in case of unexpected future issues. Take the time to research and double-check everything ahead of time to ensure a smooth property closing. 

Frequently Asked Questions