Opening

When a title defect appears shortly before a scheduled closing, the sale can’t complete until the defect is cleared or insured around. Depending on the purchase contract, lender requirements, and the severity of the defect, funds to cure the problem can come from several sources. My experience handling closings for 15+ years shows the fastest solutions combine clear written instructions, lender sign-off, and one of the funding methods below.

Common funding methods

  • Buyer pays at closing: The buyer brings additional funds (cash to close) or the lender increases the loan payoff to cover the cure. Lenders often require proof the defect is resolved before they disburse loan proceeds (CFPB guidance on mortgage closings).

  • Seller pays from proceeds: The seller clears liens or pays for corrective paperwork before closing or allows a portion of proceeds to be used at signing.

  • Escrow holdback (short-term): Parties agree to hold a specific amount in escrow after closing. The escrow agent releases funds when curative steps are completed and verified. This is common when work (e.g., recording a quitclaim or subordination) will finish within days or weeks.

  • Title insurer or closing agent advances: Some title companies will advance limited funds or perform curative work immediately and then seek reimbursement from the seller, buyer, or the insurer’s defense/protection clauses after closing. This prevents last-minute funding failures but typically requires an indemnity or written escrow instructions (see American Land Title Association guidance).

  • Third-party escrow or payoff: A neutral third party or attorney may handle a specific payoff (tax lien, judgment) using pre-signed authorizations and direction from seller proceeds or escrow funds.

When lenders will not fund

Most mortgage lenders will not wire funds while an uncurable title exception exists unless there’s a lender-approved workaround (e.g., escrow holdback or title insurer’s special endorsement). Lenders’ conditions are driven by risk: they need clear collateral and insurable title. Expect lenders to require documentation that the curative plan is enforceable and that funds are secured for the cure before they release loan proceeds (NAR and CFPB mortgage-closing discussions).

Practical examples (real-world)

  • Judgment lien discovered three days before closing: Negotiated a holdback of sale proceeds in escrow for 30 days while the seller’s attorney obtained a release. The lender agreed because escrow instructions named the exact release conditions.

  • Missing deed signature found at signing: Title company recorded a corrective affidavit immediately and advanced recording fees; seller repaid from net proceeds at closing per an agreed disbursement instruction.

  • Title insurer advance: In one transaction the insurer paid a small payoff to clear a utility lien under an indemnity agreement; the insurer then added the cost to its post-closing accounting and sought reimbursement from the seller’s settlement statement.

How to protect each party

  • Buyers: Ask for written confirmation in the purchase contract who pays for discovered title issues and request a contingency for clear title. Order title work early.

  • Sellers: Disclose known issues and keep documentation of lien releases, probate orders, or divorce decrees that affect title. Be prepared to allocate proceeds if necessary.

  • Lenders: Require specific cure steps and signed escrow instructions. Approve any title insurer advances before closing when possible.

  • Title companies/attorneys: Obtain written indemnities for any advance and clear recording/filing instructions in escrow.

Best practices and checklist

  • Order title search and commitment early (gives time to cure known issues).
  • Build a contingency (1–2% of purchase price or a flat amount) if you’re a buyer in an older or complex title chain.
  • Get lender approval in writing for any escrow holdback or insurer advance.
  • Require clear escrow instructions with release conditions, timelines, and payee details.
  • Keep all agreements in writing; verbal promises won’t protect funding flow.

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Common mistakes and misconceptions

  • Assuming the lender will fund despite an unresolved title defect. Lenders usually need an enforceable plan before release.
  • Relying solely on verbal promises from sellers or agents—always document funding arrangements.
  • Expecting title insurers to cover every cost immediately. Insurers may advance limited sums but generally require indemnity and will evaluate coverage before paying claims.

Authoritative sources and further reading

  • Consumer Financial Protection Bureau — resources on mortgage closings and what lenders require (consumerfinance.gov).
  • American Land Title Association (ALTA) — guidance on title company practices and endorsements (alta.org).
  • National Association of Realtors — seller and buyer obligations in closings (nar.realtor).

Professional disclaimer

This article is educational and not legal advice. For a specific transaction, consult your title officer, real estate attorney, or loan officer to confirm how curative funding will be handled in your deal.