Any claim, encumbrance, or defect that impairs a title's marketability.
Why Cloud on Title matters on the exam
This term belongs to Transfer of Title. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Cloud on Title
Every Freehold question shows why the right answer is right — and cites its source.
A 'cloud on title' is best defined as:
A physical obstruction on the land, such as a tree or outbuilding straddling the boundary line
A building permit application that has been filed with the municipality but not yet approved
A verbal offer to purchase the property that the seller has received but has not yet accepted
A recorded document or claim that appears to impair title but may not actually be valid
Show answer & explanation
A recorded document or claim that appears to impair title but may not actually be valid — A cloud on title is any outstanding claim, lien, or document of record that appears to affect ownership, even though it may ultimately prove invalid, and it must typically be resolved before title is marketable.
Source: PSI National Real Estate Exam Content Outline §9 Transfer of Title
A common way to remove a minor cloud on title, such as an unreleased claim from a party with no real remaining interest, is to obtain a:
Quitclaim deed from the party holding the potential claim
A full general warranty deed from the current record owner
New boundary survey of the property
Certificate of occupancy issued by the local building department
Show answer & explanation
Quitclaim deed from the party holding the potential claim — Obtaining a quitclaim deed from the person who might hold a residual claim releases whatever interest they have, if any, and is a quick, inexpensive way to clear a minor title cloud.
Source: PSI National Real Estate Exam Content Outline §9 Transfer of Title
When a cloud on title cannot be resolved by simply obtaining a release or quitclaim deed, an owner may file a lawsuit known as a(n):
Eviction action
Quiet title action
Interpleader action
A formal partition action
Show answer & explanation
Quiet title action — A quiet title action is a lawsuit filed to have a court judicially determine and settle competing claims to a property, thereby removing clouds on the title and establishing clear ownership.
Source: PSI National Real Estate Exam Content Outline §9 Transfer of Title
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