What is the term for a title transfer that is defective in a way that is unknown to the new owner?

The term "color of title" refers to a situation where an individual's claim to ownership of a property is based on a document or instrument that, while offering some appearance of a valid title, is actually flawed or defective. This can occur because of issues such as errors in the deed or prior liens that have not been resolved. Importantly, a person holding color of title believes they have legitimate ownership rights, even though there may be legal challenges or defects associated with that title.

Understanding this term is essential in real estate because it helps clarify the expectations of buyers regarding their ownership rights. It's a common concept in property law that highlights the difference between legal title (which is ultimately recognized by the law) and the appearance of ownership that a buyer might have based on the documentation they possess. Recognizing color of title is important for identifying potential legal issues that may need addressing to ensure clear ownership.