What is a clear title? How to check if a property has one

If a property doesn’t have a clear title, it’ll be a lot harder to sell or buy the home, or get a mortgage or homeowners insurance for it. In some cases, you could be responsible for paying a significant amount of money to resolve a lien or other issue — and in the absolute worst cases, you could lose the property entirely. Here’s what it means to have clear title.

‘Clear title’ meaning

A clear title, also known as a “clean title,” is a property title that is free from liens or additional issues that could jeopardize ownership, such as boundary disputes (encroachments) or easements. With a clear title, there’s no doubt who the owner of the property is, or who can claim legal ownership of the property.

To get a mortgage, lenders require a thorough title search of local property records to ensure the title is clear.

How to check for clear title on property

As a homebuyer or seller, you can visit your local property records office or do an online search for the property’s title history. This will tell you what’s in the official records, but it won’t tell you what isn’t there — and there might be other records that’ll need to be checked, as well, such as building permits and zoning rules, which can limit property rights.

When getting a mortgage, your lender will work with a closing agent, such as an attorney, title company or escrow agency, to conduct a title search. Often, borrowers are asked to pay a fee for this search as part of the loan’s closing costs.

Common title issues and how to resolve them

Given that property ownership is documented in local records offices, it might seem as though there should be few, if any, title defects. Not so. First American, one of the largest title insurers in the U.S., maintains a list of some 70 possible defects, including:

• A forged deed
• An undisclosed divorce
• Undisclosed tax liens
• A disputed will
• Mechanic’s liens
• Zoning violations

Title issues are not common, but if the title search uncovers one — or if it doesn’t, but one comes up later — there can be considerable legal costs. This is where title insurance comes in.

Your lender will require the purchase of lender’s title insurance, which protects the lender and covers up to the value of the mortgage if a defect is found.

You could also purchase an owner’s title insurance policy to protect yourself, which covers up to the home’s purchase price. With an owner’s title insurance policy, the title insurance company will pay any outstanding loan balance as well as your equity up to the purchase price in the event of a successful claim of ownership by another party. You can also get an inflation rider so that if the value of the property increases, so does the amount of coverage (up to a certain point).

Keep in mind that the cost of title insurance can vary considerably. In some areas, title insurance costs are set by state regulators, while elsewhere it can pay to shop around. When comparing your options, always ask for the “reissue rate,” which is a discounted rate that might be available in situations when the property was recently sold or refinanced.

Remember, too, that while title insurance policies cover a lot of potential issues, they don’t cover all of them. If an issue does come up, it’s best to speak with an attorney who specializes in real estate matters to resolve any questions before you buy.

FAQ

• What does clear title mean?

  Clear title means that the title to a property doesn’t have any liens or other issues attached to it. It’s about ownership, and who does — or does not — have a claim to legal ownership on the property.
  

• What’s the difference between clear title and clean title?

  In real estate, clear title and clean title are used interchangeably to refer to a home title that is free of liens or other issues.
  

• Can you buy a home without clear title?

  Yes, it’s possible to buy a home without clear title, but it’s harder and extremely risky. You won’t be able to get a loan or buy homeowners insurance, and if there is an issue during the transaction or down the line, you could have to pay huge costs to remove liens. In another worst-case scenario, you could potentially lose the home.