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cloud on title

A cloud on title is a claim  or encumbrance  that affects the ownership  of a property and can potentially discourage future parties from purchasing it. These claims or encumbrances can arise from easements  or mortgages  on the land, or they can arise from a defect  in a deed  or a lien  that may yield title  to a third party . Typically, these claims can be discovered through a title search . 

For example, a title search could discover a mechanic’s lien . Mechanic’s liens are typically placed on the property when there is an issue involving payment for construction. Because the mechanic’s lien remains with the property, the lien creates a cloud on the title, discouraging potential buyers from purchasing the property. A cloud on title caused by a mechanics lien can be lifted by paying the unpaid balance to that mechanic. Clouds on title caused by other defects may be lifted by a quiet title action .

These claims or encumbrances do not need to be valid in order to create a cloud on the title. Rather, these claims only need to be a colorable claim .

[Last reviewed in July of 2022 by the Wex Definitions Team
]

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• property & real estate law

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