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 updated in July of 2022 by the Wex Definitions Team]