Clearing Clouds from the Title to Real Property Through Quiet Title Actions
The parties to a real estate transaction will typically research the current owner’s title to the real property in order to discover what liens or encumbrances exist on the property. In some instances, clouds appear on the title to real property which complicates the process of transferring ownership of the property from the seller to the buyer. As discussed below, those clouds can be cleared through the filing of a quiet title action.
What’s a Cloud on Real Property?
When real estate people and real property attorneys talk about a “cloud” or an encumbrance on real property, they mean an outstanding claim on the title to the real property.
For instance, a “cloud” can exist when:
An old mortgage has been paid off but the deed securing that old mortgage hasn’t been reconveyed
A prior ownership interest hasn’t been correctly transferred to a subsequent owner
A lien has been recorded against the property to secure a debt, such as a mechanic’s lien or a judgment lien
There’s been a disagreement regarding who owns the property, including a hostile taking of the ownership through adverse possession.
Clouds on Property Purchased at a Tax Lien Sale.
When property is purchased from the county at a tax lien sale, the prior owner of the property has a two-year period following the date of the sale in which to file a lawsuit disputing that the taxes were paid prior to the sale or alleging some type of irregularity with the sales process.
In addition, although most prior encumbrances on the property were removed when the property was deeded to the county treasurer prior to the tax sale, some encumbrances, such as easements and liens for taxes or assessments, may remain on the property.
A buyer who purchases real property at a tax lien sale may not be able to obtain title insurance on a subsequent sale without first clearing title through a quiet title action.
How can a buyer determine if liens exist on real property?
By obtaining a title report.
What’s a title report?
Among other things, a title report:
Provides notice of documents recorded on real property which may affect the title to that property
Provides the correct legal description of the property, which is different than the street address
Provide the Assessor’s Parcel Number for the property
Identifies the legal owner according to the recorded documents.
Depending on the type and location of the property, the legal description may simply identify lot and block numbers on a subdivision map, or the legal description may be a complicated listing of measurements within a certain section and township of the state.
The types of documents which may be identified in a title report include:
Deeds of trust
Grant, bargain, and sale deeds
Liens, including mechanic’s liens
Lis pendens (notice of pendency of action, which identify lawsuits involving the property)
Contracts of sale
Okay, I have the title report. Now what do I do?
To clear liens from the property as well as to make sure none of the prior owners of the property assert any claims to the property, the buyer will need to file a quiet title action against the prior owners of the property and any lienholders.
What’s a quiet title action?
A quiet title action is an equitable action filed in district court to determine all adverse claims to real property made by anyone who either claims an ownership interest in the property or claims they are owed money and the property is security for that debt.
The object of a quiet title lawsuit is to obtain a judgment from the court confirming that the buyer is the sole owner of the property and that the lienholders and prior owners named as defendants are forever barred from asserting any claims whatsoever to the property which are adverse to the buyer.
Who else besides the buyer is involved in a quiet title action?
In a quiet title action, the buyer should name as defendants:
Prior owners of the property
Any known heirs of the prior owners
All lienholders, such as:
The municipality that held title to the property pursuant to the tax lien
The last known addresses for the prior owners can be obtained from the title company, as well as the addresses for other lienholders. If the addresses are unknown, these parties will need to be served with notice of the lawsuit through the publication of the summons in the newspaper.
How long does it take to clear liens and claims through a quiet title action?
That’s the million-dollar question.
A quiet title action is like any other lawsuit.
The defendants must be served with a copy of the summons and complaint. After service, the defendants have twenty days from the date of service to respond.
If the addresses of the prior owners are unknown and the summons needs to be published, the summons must be published once a week for four consecutive weeks. A defendant served through publication then has twenty days to respond from the last date of publication. A copy of the summons will also need to be posted on the property.
If any of the defendants file a response to the complaint, the case will need to be litigated like any other court case. However, if a defendant fails to respond in a timely manner, the clerk of the court will enter a default against the defendant.
No one responded to the Complaint, so what happens next?
Even if all the defendants fail to answer, the buyer will still have to prove to the court that he or she holds title to the property. This is done through a short hearing before the judge.
Depending on the individual judge’s schedule, the hearing might be accomplished quickly, or in other instances, the buyer might need to wait several weeks before the judge has an opening on his or her calendar for the hearing.
After the hearing, if the judge finds that the buyer is the owner of the property and the defendants have no claim to the property, the judge will sign a Judgment and Decree quieting title in the buyer. The buyer then records a certified copy of the Judgment and Decree with the county recorder where the property is located.
Quieting title takes time.
As you can see, quieting title through a court action is not something that can be accomplished within the typical thirty-day escrow period.
If you’re planning to sell property, particularly any property you purchased through a tax sale, plan ahead. Your title should be researched, and if you discover clouds on the property, file your quiet title action before you open escrow. You will save yourself the headache of having to extend escrow and risk losing an impatient buyer while the quiet title action works its way through the court.
If you need advice or the assistance of an experienced real estate attorney to assist you with a quiet title action in Nevada, The Stone Law Firm is available to help you.