Bouvier's Law Dictionary describes "bad title" as "...one which conveys no property to the purchaser of an estate." It's rare for property titles to fit this definition; however, sometimes the title on a property can have breaks in the chain of title (property transfers) or clouds on the title, such as an old mortgage that doesn't appear to have been paid. Once these items have been resolved through filing documents such as affidavits, satisfactions or new deeds, the title is no longer "bad" and can be insured by a title company.
Status of Title
Lenders require title insurance, so before you can obtain financing, the title has to be declared "clean" by a title company before it will insure either the lender or home buyer against defects in title. If problems are discovered during the title company's search of the public records, such as a break in the chain of title, they will have to be resolved before the title can be insured. When the title company has finished searching the records, it will issue a commitment that list the requirements, such as payment of existing mortgages and liens, payment of taxes, or correction of documents found in the chain of title. The commitment also includes a list of items (exceptions) that the company will exclude from its policy.
A break in the chain of title can be the result of incorrectly prepared deeds, which makes them void, or people who never deeded out, or even heirs who never released their interests in property they received through an inheritance. Most of the time, errors are of a clerical nature, such as leaving off information or adding incorrect information. Depending on the situation, it's possible to easily repair the damage with an affidavit or rerecorded document correcting the error(s).
Title insurance protects owners from problems such as inadequate legal descriptions, problems in signature acknowledgements, tax record errors, deeds executed by incompetent individuals, forged documents, or errors in recording. If any title problem arises during the policy holder's ownership of the property, the title insurance company will resolve the issue, at its own expense, allowing the owner to enjoy their possession of the property, free from title worries.
Quiet Title Action
When affidavits and/or corrective document measures are not enough to resolve a bad title issue, a quiet title action, also known as a "suit in equity," will determine the rightful owner of the property in question. Common situations that require this kind of action are conflicts between family members, between parties who all claim ownership of the same property due to errors in conveyances, or after a purchase has been made through a tax sale.
- Law Info; Protecting the Title to Your Property; 2009
- Bouvier's Law Dictionary; John Bouvier; Francis Rawle
- Real Estate Lawyers: What is a Quiet Title Lawsuit or Action?
- Consumer Financial Protection Bureau. "What is owner's title insurance?" Accessed August 1, 2020.
- Old Republic Title. “What Is Title Insurance and How Does It Work?” Accessed May 22, 2020.
- Zillow. "What Is Title Insurance and Do I Need It?" Accessed August 1, 2020.
- GovInfo. "Public Law 93-533-Dec. 22, 1974," Page 1728. Accessed August 1, 2020.
Anita Cooper has been writing about real-estate topics since 2010. Her articles have appeared in the trade magazine "Real Estate Wealth," as well as on various websites. Cooper owns and operates a small writing business providing website and copy-writing material to real-estate professionals.