What is meant by a "cloud on title"?

The concept of a "cloud on title" refers to an unresolved issue or claim that affects the clarity of a property title. This situation arises when there are outstanding claims, liens, encumbrances, or disputes that can potentially challenge or invalidate the ownership of the property. Such clouds can stem from various sources, including unresolved probate matters, claims from former owners, or existing liens from creditors. The presence of a cloud on title can complicate transactions, as it poses risks to both sellers and buyers—sellers may be unable to legally transfer the property, and buyers may be purchasing a title with hidden issues that could lead to future disputes.

In the context of the provided choices, the other options highlight different concepts related to property but do not accurately capture the essence of what a "cloud on title" means. For instance, a clear and legally binding property title implies that there are no disputes or claims, which is the opposite of having a cloud. A guarantee of ownership refers to the formal confirmation of ownership rights, whereas an insurance policy covering potential ownership disputes is related to title insurance, which provides protection against unforeseen claims but is distinct from the concept of clouds on title itself.