Home ownership is one of the most common ways of building and passing on generational wealth. But in order for it to be an effective way to build and transfer wealth, the home needs to be dealt with effectively. If the legal and practical aspects of home ownership are ignored, instead of leading to financial security it can lead to financial instability or even liability. In this Wealth Focus, we address tangled titles, a potentially significant issue in many communities where a home is the primary store of wealth but the legal requirements for transfer haven’t been met.¹ We describe what tangled titles are and provide some practical steps to avoid or remediate them.

What is “title”?

Title refers to the official record of who owns property. When you buy a home, whether it’s a single-family house, an apartment or something else, you should receive a document that shows that you are the owner of that property. That document is called the title, and a record of the title is filed with the county clerk in the county where the property is located.

If you’ve taken a mortgage to purchase the property, the lender will often hold the official title document until the mortgage is fully repaid, but a record of your ownership is still filed with the county clerk. A record of the loan and the lender’s interest in your property is filed along with the title.

Understanding tangled title and how to avoid or remediate it

A "tangled title" refers to a situation where the ownership of a property is unclear or disputed. This often occurs when the legal title to a property does not accurately reflect the current ownership, due to reasons such as inheritance issues, lack of proper documentation or unresolved legal matters. Tangled titles can create significant challenges for property owners, including difficulties in selling, refinancing or even maintaining the property.

Tangled title is “disproportionately found in Black, Latino, Hispanic, low-income and low-wealth families” across the United States.² It often stems from a “knowledge gap in how property transfers from generation to generation” as well as poor or no estate planning or limited or no access to appropriate legal services.³

How does title get tangled?

A tangled title typically arises in the following scenarios:

Inheritance issues

When a property owner passes away without an estate plan, and sometimes even with an estate plan, the property may be inherited by multiple heirs. An estate plan can include a will, a trust or a transfer-on-death designation.

If the heirs do not take the necessary legal steps to transfer the title into their own names, legal title remains in the deceased person's name. This can be especially problematic if more than one generation has passed from the original owner’s death, for example, if now grandchildren or great-nieces and nephews reside in the property that is still nominally owned by their grandparent or great-aunt or great-uncle.

Even when the heirs do take the necessary steps to take title in their names, having multiple owners can significantly increase the likelihood that the home’s value can be lost through tax default, land speculation, partition sales or otherwise.⁴

Lack of proper documentation

Sometimes, property transactions are not properly documented or recorded. For example, if a property is sold but the deed is not recorded with the local government, the title of record remains in the previous owner's name.

Unresolved legal matters

Legal disputes, such as those involving divorce or business partnerships, can also lead to tangled titles if the ownership of the property is not clearly resolved.

Practical steps to help avoid tangled title

Create an estate plan

One of the most effective ways to avoid tangled titles is to work with an attorney to create an estate plan that clearly outlines how your property should be distributed upon your death. This ensures that your wishes are legally documented and can be followed by your heirs. Here are some things to consider:

• If you leave your real property to multiple heirs, it is important that they understand the importance of maintaining good records, filing necessary paperwork with the county, and so forth.
• If you want more control over what happens to the property after your death, you could consider leaving your property in a trust. A trust is a structure you can create where one or more people are in charge of managing the assets owned by the trust (the trustee(s)), but any number of people can benefit from the trust. What that means in this context is that one or two more responsible family members can be in charge of the property as trustees, but all of your heirs could live there or receive a share of the proceeds if the property were to be sold. If you’re interested in exploring a trust, you should contact an estate planning attorney. If you don’t have an attorney, most local and state bar associations maintain a list of attorneys who provide estate planning services.

Properly record transactions

Always ensure that any property transaction, such as a sale or transfer, is properly documented and recorded with the appropriate government office. This includes recording the deed and any other relevant documents.

It’s essential to note that having an estate plan is important, but it’s equally important to ensure that the appropriate fiduciary of your estate plan (i.e., executor, administrator or trustee) records a deed reflecting the transfer of ownership from the deceased person to his or her beneficiaries.

Use professional services

When dealing with property transactions, it is advisable to use the services of professionals such as real estate agents, attorneys and title companies. They can help ensure that all legal requirements are met and that the title is properly transferred.

Regularly review property records

Periodically review the property records to ensure that the title is accurate and up-to-date. This can help identify and address any potential issues before they become problematic. Property records are usually maintained in the county where the property is located, and many counties have made their records available online.

Practical steps to help remediate tangled titles

Probate court

If a property owner has passed away and the title is still in his or her name, the heirs may need to go to probate court to have the title transferred. Probate or administration is the legal process of administering the deceased person's estate, including distributing the property according to the will or according to state law if there is no will.

“Quiet title” action

A “quiet title” action is a legal proceeding used to resolve disputes or clarify ownership of a property. This can be particularly useful if there are multiple claims to the property or if the ownership is unclear. A court will review the evidence and issue a judgment that clarifies the rightful owner or owners.

Title insurance

If you discover a tangled title when purchasing a property, consider obtaining title insurance. Title insurance protects against future claims or disputes over the ownership of the property. The title company will conduct a thorough search of the property records and require that any issues are fixed before issuing the insurance. The title insurance company can sometimes help to fix some of the title issues, or can recommend steps to be taken and people to help implement those steps.

Mediation or negotiation

In some cases, tangled titles can be resolved through mediation or negotiation between the parties involved. This can be a less costly and time-consuming alternative to legal proceedings. An attorney or mediator can help facilitate discussions and reach an agreement.

Corrective deeds

If the issue is due to a mistake in the documentation, a corrective deed may be used to fix the error. This involves creating a new deed that accurately reflects the correct information and recording it with the appropriate government office.

The bottom line

The sooner you identify and deal with any issue, usually the easier it is to achieve a positive resolution. The longer the problem of tangled title goes on, the more people are often involved and therefore the harder it is to solve without having to go to court, which can be both expensive and time-consuming.

Given the various legal and tax issues that can be involved with tangled titles, it's important to speak with a qualified attorney or tax professional. A J.P. Morgan advisor will be there to assist.

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