Anything in the ownership record that stops a seller conveying clear title: an unreleased lien, a gap or error in the chain, a forged or improperly executed deed, an heir whose interest was never conveyed, or a legal description that does not match the ground.
Title is a claim of ownership assembled out of recorded documents. A defect is any place in that record where the assembly fails, either because a document is missing, wrong, or was never valid in the first place. The word people use loosely for the same thing is a cloud on title, which describes the effect: a matter that hangs over the property and makes a buyer or a lender uneasy about it until it is resolved.
Most defects are found and cured during escrow and nobody hears about them again. The ones that matter to a buyer are the ones that cannot be cured before closing, and the ones nobody found at all, which is the risk the owner's policy exists for.
The common kinds
The list is short and repeats itself across almost every file that has one.
- Unreleased liens. A mortgage that was paid off and never reconveyed, a judgment, a tax lien, a contractor's lien, an association's assessment lien, or a utility or code enforcement lien recorded against the parcel.
- A break in the chain of ownership. A deed that was never recorded, an estate that was never probated, a corporate seller that had already been dissolved when it signed.
- Missing heirs and unconveyed interests. A property that passed by inheritance where one heir never signed, or a spouse whose community property interest was never released.
- Forgery and impersonation. A deed signed by somebody posing as the owner, which is the defect that survives every search because the document itself looks perfect.
- Execution failures. A deed that was never properly acknowledged before a notary, never delivered, or signed by an agent under a power of attorney that had expired.
- Errors in the record. A misspelled name that puts the instrument in the wrong index, a legal description that describes a different parcel, a release recorded against the wrong property.
- Boundary and access problems. An encroaching structure, a driveway crossing a neighbour's land without a recorded easement, or a parcel with no legal right of access at all.
- Undisclosed easements and restrictions. Rights recorded long ago that bind the land and were never mentioned to the buyer.
A defect against an exception
These are not the same thing, and the difference decides who carries the risk. A defect is a problem with the title. An exception is a matter listed in Schedule B of the commitment that the insurer declines to cover, whether or not it is a problem at all. Recorded easements, the association's covenants and severed mineral rights are exceptions on nearly every policy and are not defects.
The commitment separates them in practice. Its requirements are the things that must happen before a policy can issue, which is where genuine defects appear: pay and release this deed of trust, obtain this heir's signature, record this correction. Its exceptions are the things the policy will not cover if they are left as they are.
Nevada is explicit about what a commitment is not. Under NRS 692A.023 it is an offer to issue a policy subject to the terms, conditions and exceptions stated in it, and does not constitute a representation as to the condition of the title. It tells you what an insurer will insure. It does not certify that the title is good.
How defects get cured
Curing is most of the work a title company does, and most of what the premium pays for. NRS 692A.041 puts abstracting, searching and examining the title to determine insurability inside the definition of premium for that reason.
- Payoff and release. Escrow pays the lienholder from the sale proceeds and records the release or reconveyance, which is how the great majority of them end.
- A corrective or quitclaim deed. The person with the loose interest signs it away, or a scrivener's error in a legal description is corrected by a new recorded instrument.
- An affidavit or a probate. An affidavit of identity settles a name that matched a judgment against somebody else; an estate is opened or completed so the heirs can convey.
- An indemnity or a bond, where a party with resources agrees to stand behind a matter that cannot be cleared in time.
- An endorsement, where the insurer agrees to insure over a matter rather than remove it, which is common with old easements and minor encroachments.
- A quiet title action, the last resort: a lawsuit asking a court to declare who owns what, which takes months and is the reason some defects kill a deal rather than delay it.
What to do when one surfaces in your escrow
A defect found during the title contingency is a normal event, not a disaster. The seller is generally obliged to deliver marketable title, so the first step is escrow telling the seller what has to be cleared, and the second is a realistic view of how long that takes. A payoff is days. A probate is months.
Where it cannot be cleared in time the options are an extension, a holdback of sale proceeds in escrow against the cure, an endorsement insuring over it, a price adjustment for accepting it, or terminating within the contingency period. What a buyer should not do is close over a defect they know about without disclosing it to the insurer in writing, because a matter known to the insured and not disclosed is excluded from coverage, which converts an insurable problem into an uninsured one.
Questions people ask
What is a cloud on title?
It is the informal name for the same thing seen from outside: any recorded matter or unresolved claim that casts doubt on ownership and makes the property hard to sell or finance until it is removed. An old unreleased mortgage and a pending lawsuit over the property both count.
Who is responsible for fixing a title defect before closing?
Ordinarily the seller, since a purchase agreement generally requires them to convey marketable title, and escrow pays liens off out of the proceeds. Whether the deal survives depends on the cost and the time the cure takes, both of which are usually negotiated rather than assumed.
Can you sell a house with a title defect?
Sometimes, if the buyer and their insurer will accept it: the matter is disclosed, insured over by endorsement, or covered by a holdback. Many defects simply have to be cleared first, and a lender will not fund against one that threatens the priority of its lien.