A cloud on title is aclaimorencumbrancethat affects theownershipof aproperty and can potentially discourage future parties from purchasing it. These claims or encumbrances can arise fromeasem*ntsormortgageson the land, or they can arise from adefectin adeedor alienthat may yieldtitletoa third party. Typically, these claims can be discovered through atitle 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 aquiet 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 acolorable claim.
[Last updated in July of 2022 by the Wex Definitions Team]
