I have heard the terms “color of title” and “cloud over title”. Other than colorful phrases, how do they impact title?
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UPDATED: Jan 25, 2012
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Color of title, also referred to as “apparent title,” 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. Typically color of title occurs in the form of a writing – an instrument which contains a description of land which has been conveyed but because of some defect falls short of the mark. A “cloud on title” exists when any outstanding claim affects your 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. A “cloud on title” exists when any outstanding claim affects your title to 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, someone else is 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.