Clear title

From CEOpedia | Management online

A clear title can be defined simply as the term which is used in order to claim that the owner of some real property owns it freely and out of any impediments and obstacles [1]. There are other forms of the term: "good title", "just title," or "free and clear title". The term is used in various fields of science such as finance, economics, law or business.

The clear title can be also explained as the title given to an owner who owns the property directly and with no restrictions, for example levies or liens. When a person or a company is granted the clear title, it is obvious who the owner of the property is, as well as there is not any chance that someone else can question and dispute the ownership. What is more, there is no point for this person or a company to make any form of legal claim to this property. What is more, the term is used to claim that even though the owner of a property or an asset is not granted the clear title, it is still the power and responsibility of the owner to transfer the clear title. Another definition of the clear title defines it as ownership claims to a property or an asset which is free of any encumbrance, for example:

  • liens
  • pending judgments
  • court-attachments
  • or claims

and, therefore, it can be claimed the property is marketable [2].

The concept of the clear title

To explain the concept of the clear title, the following example is presented - an owner of any property or an asset, for example a motorcycle that is granted the clear title is the only and unquestionable owner [3]. In this case any other party cannot issue any form of legal claim to the ownership of this property.

Issues and restrictions

There are some issues and restrictions which may preclude a title from becoming the clear title. These obstacles with the property or the asset can be strictly related to the property itself which may provoke the obviation of the clear title. It can be noticed in the case when there are some violations related to building code which have been neither addressed nor fixed. This situation may cause being granted so-called "dirty title" which would affect the sale of the asset or the property badly or would conflict with the ownership.

Another problem may appear when there are one or even more liens on the asset or the property and because of that it may also cause that the clear title will not be granted to a person or a company. The liens can be described as an issue that can be placed on the asset or the property by a creditor in order to charge money which the person owes to him or her. In the case when there is a lien on the asset or the property, the owner cannot sell it before he or she will pay the creditor. Another solution is the sale of the property or the asset and making use of the money to pay the debt to the creditor [4].

There is also a problem with being granted the clear title when a property or an asset, for example an apartment or a house, has been transferred among the members of a family for many generations. It may cause that it may not be precisely determined the legal or original owner of the property or that there is more than one owner of it.

Examples of Clear title

  • A clear title is needed in order to buy or sell a home or other real estate. Without a clear title, no sale or transfer of ownership can take place.
  • A clear title is also required when obtaining a loan against a piece of real estate. Lenders need to be sure that the person who is taking out the loan has the legal right to do so.
  • When refinancing a loan, a clear title is also necessary. The existing lender will not release the title until they have been paid off in full.
  • When taking out an insurance policy on a piece of real estate, the insurance company will need to see a clear title in order to ensure that they are not insuring something that may have liens or encumbrances against it.
  • In order to have a clear title to a piece of real estate, all taxes, liens, judgments, or other encumbrances must be satisfied. If they are not satisfied, the title is not considered clear.

Advantages of Clear title

A clear title is beneficial in many ways. Here are some of the advantages of having a clear title:

  • It provides assurance of ownership, allowing the owner to enjoy the rights to the property without any dispute or legal encumbrance.
  • It serves as an evidence and proof of ownership, which can be used to transfer or sell the property.
  • It serves as a guarantee to the buyer or lender that the title is free and clear of any liens or claims.
  • It eliminates the risk of a potential lawsuit or dispute arising from any claims on the property.
  • It can increase the value of the property in the market, as lenders are more likely to provide loans for properties with a clear title.

Limitations of Clear title

A clear title comes with certain limitations that should be taken into account when deciding to purchase a property. These include:

  • Zoning Laws: Zoning laws regulate the type of buildings that can be built and the uses of those buildings. Some properties may have restrictions on what can be built due to zoning laws.
  • Easements: Easements are legal rights that allow a person or entity to use the property of another person or entity for specific purposes. These rights may impact the use of the property and can reduce the value of the property.
  • Liens: Liens are legal claims against a property, which can be created by creditors, government agencies, or other parties. These liens can reduce the value of the property and can be difficult to remove.
  • Title Defects: Title defects are any issues that may exist with the title of the property. These can include mistakes in the public records, unpaid taxes, or other issues that can affect the title to the property.
  • Boundary Disputes: Boundary disputes arise when there is disagreement between two or more parties about the exact boundaries of a piece of property. These disputes can be costly to resolve and can lead to legal action.

Other approaches related to Clear title

In addition to the clear title, there are several other approaches related to real estate ownership. These include:

  • Torrens title: This system of title registration is used in many countries, such as Australia, Canada, New Zealand, and the United States. It provides a guarantee of title by the government and allows for quick and efficient transfer of ownership.
  • Fee simple title: This type of title is the most common form of real estate ownership and gives the owner the right to use, possess, and transfer the property as they see fit.
  • Leasehold title: This type of title grants the owner the right to use the property for the duration of their lease. The owner does not have full ownership of the property and will have to renew their lease after it expires.
  • Adverse possession: This is a legal doctrine that allows someone to gain ownership of a property if they have been using it for a specified period of time without the permission of the rightful owner.

In summary, there are several approaches related to real estate ownership, such as Torrens title, fee simple title, leasehold title, and adverse possession. Clear title is just one of the approaches to real estate ownership, and it provides a guarantee of title by the government and allows for quick and efficient transfer of ownership.

Footnotes

  1. Long C., (2014)
  2. Long C., (2014)
  3. Malloy P. R., (2015)
  4. Long C., (2014)


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References

Author: Jakub Chmiel