Chain of Title vs. Cloud on Title

The chain of title reveals the succession of owners in the history of a
property, whereas a cloud on title is a defect or impairment in the title.

Chain of Title —  The recorded history of matters that affect the title to a specific parcel of real property, such as ownership, encumbrances and liens, usually beginning with the original recorded source of the title. The chain of title shows the successive changes of ownership, each one linked to the next so that a “chain” is formed.

Ownership of a particular property frequently passes through many hands subsequent to the original grant. If any link is broken in a property’s chain of title, then the current “owner” does not have valid title to the property. For example, if a forged deed was somewhere in the chain, then no subsequent grantee would have acquired legal title to the property.

Cloud on Title — Any document, claim, unreleased lien or encumbrance that may superficially
impair or injure the title to a property or cast doubt on the title’s validity.
Clouds on title are usually revealed by a title search and may be removed from
the record by a quitclaim deed or a quiet title proceeding initiated by the
property owner. Usually, the owner is prevented from conveying a marketable
title while the “cloud” remains, unless it is only for a minor
nuisance item.

Typical clouds on title are (1) a recorded contract for deed that has not been
removed from the record, but under which the buyer has defaulted; (2) a
recorded option that was not exercised, but that still appears on the record;
(3) a recorded mortgage paid in full, but with no satisfaction of mortgage
recorded; (4) property sold without the wife’s release of her dower interest;
(5) an heir of a prior owner with a questionable claim to the property; (6) the
situation in which one of many heirs has not signed a deed; (7) a lis pendens
(pending litigation) having been dropped but not removed from the record; (8) a
lessee in default having an option to purchase, which probably will not be
enforceable if he or she breaches the lease; or (9) a prior conveyance with an
incomplete legal description.