Also known as:cloud on title · clouds title · clouded title · clouding the title
Written by attorneys — see sources below.
A claim or encumbrance against real property that creates reasonable doubt as to ownership. Title defects that produce this result include unreleased liens, breaks in the chain of title, outstanding interests such as easements or covenants, and pending litigation asserting adverse claims.
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Common Examples
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Quiet Title Action Blocks Closing
Cedar Creek Farms contracted to sell a campus to Colin Chambers for use by several charities. The contract required delivery of marketable title and provided a short cure period. Before closing a quiet title suit by heirs asserted a reversionary interest in one building, and Cedar Creek Farms admitted it could not resolve the suit in time. Colin Chambers refused to close, and the court denied specific performance because the unresolved litigation created a cloud on title that rendered it unmarketable.
Prejudgment Attachment Clouds Sale
Christopher Collins obtained a prejudgment attachment on Chloe Chen's commercial lot to secure a contract claim. The recorded attachment prevented Chloe Chen from conveying clear title to a buyer who needed financing. Because the attachment remained of record and exposed any purchaser to litigation risk, the buyer refused to close until the attachment was lifted after a prompt hearing.
In March 1988, John F. DiGiovanni submitted an application to the Connecticut Superior Court for a prejudgment attachment in the amount of $75,000 on Brian K. Doehr's home in Meriden, Connecticut, in conjunction with a civil action for assault and battery that he was seeking to institute against Doehr. DiGiovanni had no pre-existing interest in Doehr's real estate, and the suit did not involve the property. Connecticut law authorized prejudgment attachment of real estate without prior notice or hearing upon verification by oath that there was probable cause to sustain the validity of the plaintiff's claim.
DiGiovanni accompanied the application with an affidavit stating that the facts set forth in his complaint were true, that he had been willfully, wantonly and maliciously assaulted by Doehr resulting in a broken left wrist, an ecchymosis to his right eye, and other injuries, and that he had expended sums for medical care and treatment. The affidavit concluded that these facts were sufficient to show probable cause that judgment would be rendered for the plaintiff. On March 17, 1988, the Superior Court judge found probable cause to sustain the validity of the claim and ordered the attachment on Doehr's home to the value of $75,000.
The sheriff attached the property on March 21, 1988. Doehr first learned of the attachment after it had been recorded on the land records. He had not yet been served with the complaint. The attachment notice informed Doehr of his right to a hearing to claim that no probable cause existed, to request that the attachment be vacated or modified or a bond substituted, or to claim that some portion of the property was exempt.
Doehr filed suit in the United States District Court for the District of Connecticut claiming that the Connecticut statute violated the Due Process Clause of the Fourteenth Amendment. The District Court granted summary judgment upholding the statute. The Court of Appeals for the Second Circuit reversed. The Supreme Court granted certiorari to resolve the conflict of authority regarding the statute's constitutionality.
What kinds of defects commonly cloud title and render it unmarketable?
Unreleased liens, breaks or ambiguities in the chain of title, outstanding interests such as easements or covenants, and pending litigation that asserts an adverse claim all create clouds on title. A reasonable buyer would refuse to accept title subject to any of these defects because each exposes the buyer to litigation risk or loss of part of the property.
Supporting sources
When may a buyer refuse to close because of a cloud on title?
A buyer may refuse to close and may rescind or resist specific performance when the seller cannot cure the cloud by the closing date or within any contractual cure period. The buyer need not wait until the scheduled closing if the seller has already refused or is unable to remove the defect.
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Does a forged deed in the chain of title create a cloud that justifies refusal to close?
Yes. A forged deed is void and creates a serious ongoing risk that a prior true owner could assert an adverse claim. That risk renders title unmarketable even if the forgery is decades old and no litigation is pending.
Supporting sources
Is a recorded option agreement that cannot be released a cloud on title?
Yes. A recorded option that grants repurchase rights to an unlocatable holder creates reasonable doubt about clear ownership of part of the property. Because the defect cannot be cured within the contract period, the buyer may refuse to close.
Supporting sources
501 U.S. 1 (1991)
…that the property interests that attachment affects are significant. For a property owner like Doehr, attachment ordinarily clouds title; impairs the ability to sell or otherwise alienate the property; taints any credit rating; reduces the chance of obtaining a home equity loan or additional mortgage; and can even place an…