A clear title is one that is free of any liens, debts, claims, or other doubts about ownership. Establishing a clear title is important in many transactions, including buying a car or a home. When dealing with real estate, a title search is generally conducted in order to verify that the title is clear before closing.
Let’s take a look at what a clear title is, how clear titles work, and whether or not you need a clear title.
Definition and Examples of Clear Titles
Understanding what a clear title is is pretty easy. In short, a clear title means that no one else has any other claim to the title. This means there are no debts, liens, claims, or disputes about the title, or who owns the piece of property in question.
Title companies can conduct title searches in order to verify whether or not the title is clear. This is commonly done in real estate as homes are not meant to be sold unless the title is clear. It typically takes between 10 and 14 days to complete a title search.
Clear titles aren’t just for real estate, however. Liens can exist on all types of property, including cars. If you’ve ever financed a vehicle, you’ve had a lien on your car. This simply means that there is a debt registered against the vehicle, and you still owe money to the lender. Due to this, you do not have a clear title on your car.
- Alternate definition: A clear title is one without any other claims on it.
How Clear Titles Work
Let’s say that you’re looking to buy a home. You’ve found the perfect property, made an offer, and signed a sales agreement. With pre-approval secured, you start all the steps towards closing, including a home inspection, gathering your documents, and clearing any other contingencies you’ve included.
Unfortunately, when the title company completes its search you receive some bad news. The owners of the property haven't paid for the renovation of the kitchen they recently had completed, and the contractor has filed a lien against the property for the amount due.
Most mortgage companies require you to purchase title insurance, which protects them against any defects in title after you buy your property.
Due to this lien, the owner does not have a clear title. In this case, the sale comes to a halt until the owner can clear title.
Depending on the situation, the sellers may still be able to move forward. If they pay off the debt immediately, the title can be cleared. They can also negotiate to have the renovation paid off with the proceeds of the sale.
Here are some common reasons why a property would not have a clear title:
- Unpaid state taxes
- Unpaid federal taxes
- Lien for unpaid work on the home
- Unpaid homeowners association (HOA) dues or fines
- Unpaid child support
- Bankruptcy filings
Other options for clearing liens include disputing them—usually with the help of an attorney—or taking out a bond in order to move forward with the home sale. A surety bond acts like collateral for the amount still owed on the lien and will clear title.
The fastest way to clear a lien and thus the title is simply to pay the debt owed.
What It Means for You
As a buyer, it can be difficult to purchase property without a clear title. Attempting to do so may result in issues down the road if any claimants come forward against the title. For instance, after running a title search you may find that the owner still owes money to a contractor for work done on the house (as in the example above). Or you may find that the owner has not paid property taxes for the last few years, or that they are in a dispute with the neighbor about the placement of a mutual property line. These are all issues that you would want to clear before taking on the liability.
As a seller, having a clear title is important, since you cannot move forward with selling your property while there are any liens, judgments, or claims against it. Delays in the process due to unclear titles can be costly and frustrating for both sides
- A clear title is one that has no debts, liens, judgments, or other claims against it.
- Common reasons for not having a clear title include unpaid taxes, unpaid child support, bankruptcy filings, and liens for work done on the home.
- It’s important to have a clear title before selling a home; most sales transactions cannot close without one.
- Title search companies conduct a search in order to verify whether or not a title is clear.