Color of title is a situation where someone appears to own a piece of property, but the documentation proving ownership is invalid. It is possible to possess property in this way, sometimes for generations, but to encounter problems when attempting to transfer it or when defending the title against a rival claim for ownership. In some cases, it is possible for someone in this position to obtain full legal title to the property by complying with certain regulations.
The “color” in this phrase is reference to another legal term, “color of law,” meaning “appearance of law.” Someone with color of title has documentation that is designed to prove ownership of a piece of property, but this documentation is flawed in some way. For example, a deed may show conveyance from someone who never legally owned the property, some of the documentation may be forged, or there may be other problems.
Title insurance generally does not cover this problem. When people buy property and acquire title insurance, they are expected to do a search to see if there are any problems with the property title, such as liens or other issues. The title insurance company may specifically exclude color of title and certain other situations from its policy. This means that, if the documentation becomes a problem, the property owner will get no help from the insurance.
Color of title can be turned into legal possession in certain situations. Adverse possession is an excellent example: if people occupy a property, make improvements, and pay property taxes for a set period of time, they can file to have the title to the property legally transferred to their names. In the event that there is a challenge before the time period is up, however, the possessors can be removed from the property by the legal owner, who also benefits from any improvements made.
Sometimes, problems with a property title go unnoticed. Especially if a title has been in the same family for an extended period of time, people may not be aware that the documentation is flawed until they attempt to sell the property to someone outside the family. Problems can also emerge when people are making substantial improvements and looking for financing to assist with the costs. When people encounter problems with a property title, they may need to consult a lawyer to get assistance with the process of clearing the matter up.