What is a title defect?

Sharpen your defect-spotting skills with this practical refresher.

TL;DR: What title agents need to know about title defects

• A title defect is any issue that clouds legal ownership and may affect a buyer’s or lender’s rights.
• Common defects include unknown liens, forged documents, missing heirs, and recording errors.
• Title defects can delay closings or lead to legal and financial complications if not resolved.
• Title insurance may cover defects through exceptions, endorsements, or indemnities.
• Spotting and resolving defects is key to protecting clients and ensuring a smooth transaction.

Left unchecked, title issues can lead to delays, legal complications, or even financial loss. Whether you're a homeowner trying to understand what could complicate your property’s title, or a seasoned title professional looking for a refresher, it’s important to recognize the nuances behind title defects.

Let’s break it down – here’s what anyone dealing with property ownership should know about title defects, and what title professionals need to keep top of mind.

The simple definition.

A title defect is any issue with the legal ownership of a piece of real estate that could affect a buyer’s or lender’s rights. In the title industry, this is referred to as a "cloud" on a title – something that makes the title less than clear.

That doesn’t always mean the deal is dead in the water. It simply means that someone needs to identify it, and either resolve it or insure around it.

Common types of title defects.

Title defects come in all shapes and sizes. Here are some of the usual suspects:

• Errors in public records – Typos in legal descriptions, misindexed documents, or incorrect recordings of ownership.
• Unknown liens – Unpaid debts that attach to the property, such as outstanding contractor bills, taxes, or HOA dues.
• Missing heirs or ownership claims – Disputes from heirs who weren’t accounted for in a previous transfer.
• Forged or fraudulent documents – Deeds or mortgages signed without proper authority or under false pretenses.
• Undisclosed easements or encroachments – Legal use of access rights by others that affect the property.
• Improperly executed documents – Deeds missing signatures, not authorized, or executed by someone lacking legal authority.

Each of these can cast doubt on ownership – or open the door to future litigation.

Why do title defects matter?

For buyers and lenders, title defects represent real financial risk. A hidden lien, for example, could mean unexpected debt, or a forged deed could mean the seller didn’t have the right to sell the property. Expert title searches and clear communications with clients are vital to catching defects before they cause damage.

How title insurance handles defects.

If a defect is discovered before closing, it may be resolved through curative work – tracking down missing heirs, obtaining releases, correcting documents, etc.

If it can’t be cleared, the underwriter may allow coverage through:

• Exceptions on Schedule B.
• Endorsements that insure around the issue.
• Indemnities when one party agrees to assume risk for a known defect.

If a defect surfaces after the policy is issued and isn’t excluded or expected, that’s where the title insurance kicks in – covering legal fees, loss of value, or invalidated ownership, depending on the situation.

Keep your eyes on the clouds.

Title defects aren’t always dramatic – they can be as small as a missing initial or as big as a competing ownership claim. Either way, they’re central to the value a great team of title professionals brings to the table. The ability to uncover, explain, and resolve these issues is what keeps deals moving forward with confidence.

Because at the end of the day, a clean title isn’t just a line on a closing statement – it’s peace of mind.

Interested in learning more about the lifecycle of a transaction and what title defects are? If you’re a First American Title agent, click here to learn more about more about the lifecycle of the transaction and what title defects are on AgentNet Knowledge®.

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