I have heard the terms “color of title” and “cloud over title”. Other than colorful phrases, how do they impact title?

Color of title is also referred to as “apparent title.” It occurs when any fact which appears on its face to support a claim of present title to land for some reason fails to establish ownership by law. For example, you purchased a ski chalet for investment purposes at Squaw Valley, receiving what you thought was a valid title. Later, it turned out that the previous owner’s title, handed down through several generations of his family, was defective. So your claim of title may not be valid. A property owner may move forward not knowing about the related error and assuming their now invalidated title is still valid.

Often, color of title goes hand in hand in hand with adverse possessions. In short, someone built something on part of your land. Maybe they cultivated crops or otherwise made use of the land inhabiting it for a set period without anybody noticing. Then they file a petition with the courts to legally take ownership of the portion of the property they’ve been using. If a person were to claim adverse possession, they would generally only get what they possess. If adverse possession is used in tandem with color of title, the person may get the whole property even though they only cleared part of it.

How Does A “Cloud on Title” Affect Your Title?

A “cloud on title” exists when any outstanding claim affects your legal title to land. If a cloud exists over title to your property, you might have to bring a lawsuit to quiet title and firmly establish in law that you own the land. Suppose, for example, that you are informed by letter that your ownership of your Maui beach bungalow is invalid because of an earlier deed on the property.

In other words, there was a break in the chain of title. Someone who had interest in the title did not sign away their portion of the ownership. So they’re now challenging your ownership of the beach bungalow. The remedy usually for removing a cloud on a title is to bring a proceeding in court to firmly establish in law that you own the land. Both terms could signal some sort of title problem which may or may not be covered by the buyer’s title insurance.

Can You Avoid Title Problems before You Purchase?

Any time you purchase real estate, you should always consult with a licensed title company. Mortgage companies typically require a thorough chain of title to look for anything that would interfere with a transfer of title to property in question.

A title professional will issue a title report showing the names the property was listed under and any existing liens and interests. This also shows the legal owner. So if your seller does not have claim to title, you should stop the transaction until the issue can be resolved.

These are just a couple common title issues that may come up in a title report. When you purchase title insurance, the title company provides some assurance that the chain of title is clear. There is also some protection to fix the issue should something come up later on.

If the title company in one transaction missed a cloud or other issue, any future sale would typically go through the same title company to repair the issue moving forward. The best way to deal with title issues is by getting them out of the way before you finalize your purchase.