A bad title is a title that does not grant ownership to its holder, usually because the holder has unsettled legal or financial problems. These titles can prevent the holder from selling the asset, and are almost always associated with real estate. The most common reason that a title becomes a bad title is because of liens on the property, back taxes, or failure to correct a building violation. A bad titleholder must fix any issues associated with the property or the title in order to legally sell or transfer to property. If a bad titleholder sells or transfers the property without doing so, then the sale is not legal.
Real estate investors or people looking to purchase a home should make sure that a property does not have a bad title before proceeding with any purchase. This is especially important if you are looking at foreclosures, as they can have a lot outstanding issues that might not be clear at first. A good thing to do before moving forward with a purchase is to consider owner’s title insurance to protect yourself against unforeseen claims against a title.