When it comes to selling real property, “clouded title” scenarios are often the most frustrating. Often times these issues arise upon the death or incapacity of a loved one, and can involve poorly documented transactions decades after anyone involved in the transaction has any ability to speak on the circumstances. In this post, we’ll break down some of the most common “clouded title” scenarios, how they can affect you, and what you can do about it.
What is a Clouded Title, Anyway?
In the world of real property, a clouded title refers to any irregularity or claim that could put a damper on your ownership rights, often discovered in a title report as you have already agreed to sell the real property. Think of it as a pesky rain cloud hovering over your property – nobody wants that! The Oregon Supreme Court defines a cloud on title as “an outstanding claim or encumbrance which, if valid, would affect or impair the title of the owner of a particular estate.”[i] In simpler terms, it’s anything that makes you a buyer or a title company question, “Do I really own this?”.
What Causes a Clouded Title in Oregon?
Several things can lead to a clouded title, and some might surprise you:
1. Liens. Unpaid taxes or contractor bills can create liens against your real property. These are often the easiest clouds to resolve, as they can simply be paid at closing. However, it may be necessary and appropriate to challenge liens.
2. Prior Conveyance Issues. This happens when title was conveyed to you or your predecessors, by a third party that, according to a title company, did not have the right to transfer title to real property to you or your predecessors.
3. Unresolved Easement Rights, Boundary Lines, or Options. Recorded agreements made by your predecessors or prior owners can create questions for a buyer or title company which will cloud title.
4. Fraudulent Deeds: Unfortunately, Forgery Can Happen. A trustee or a personal representative discovers that a third party has recorded a deed or conveyance in the real property records giving the third party some interest in the real property.
5. Unreleased Mortgages or Land Sale Contracts. Even if the underlying contract has been paid off, if the lender doesn’t file the appropriate release or deed, you might find your title clouded. Worse yet, this is often discovered decades after the fact, years after the death of the buyer and seller, and after the original “trustee” title company has been shuttered.
The Implications of a Clouded Title
A clouded title can throw a wrench in your plans. Here’s what you might face:
- Delays in Selling. Trying to sell real property with a clouded title? Good luck! Buyers and lenders are very reluctant to purchase real property with a clouded title, and so you will likely be required to resolve the cloud.
- Decreased Property Value. Uncertainty can often lead to lower offers. While liens are generally paid at closing (and, thus, a resovlbable problem), a missing reconveyance, or a rogue deed or life estate document will very likely stop you in your tracks.
- Legal Challenges. You might find yourself in litigation with parties claiming an interest in your real property.
Clearing the Cloud: What to Do Next
If you find yourself with a clouded title, don’t panic! While these issues are always difficult, we are experienced with numerous approaches to resolve a clouded title.
- Negotiation. Many clouds on title are the result of a simple mistake; we are experienced in tracking down the relevant parties, and getting the necessary releases to resolve the cloud, often without any additional legal procedure.
- Quiet Title Actions. In some instances, you may be required to file a lawsuit, called a “quiet title action” to enforce your rights.
- Enforcing Conveyance Obligations and Reformation. In other situations, you may be required to enforce obligations and request reformation.
Prevention: The Best Medicine
The best way to deal with a clouded title is to prevent one from forming in the first place. Here are a few tips:
- Regular Title Searches. Conducting periodic title searches can help you catch issues early. It’s like a routine check-up for your real property!
- Prompt Recording. Always record real property-related documents promptly (ORS 93.710) to avoid confusion and conflict at a later date.
- Boundary Surveys. Hiring a professional real property surveyor can help prevent disputes over property lines. After all, good fences make good neighbors!
Conclusion
Clouded titles may sound intimidating, but with the right knowledge and proactive measures, you can navigate these waters with confidence. If you find yourself facing title issues, we are prepared to meet with you today, to ensure your real property issues are resolved, and to restore your unclouded peace of mind.
[i] in Pearce v. Denton