How title exceptions show up and why lenders care
When a lender underwrites a mortgage they want two things: a valid security interest in the property and confidence the borrower actually owns what they claim to own. Title exceptions are deviations from a completely clear title that could interfere with ownership or a lender’s ability to foreclose if necessary.
Common exceptions include recorded liens (tax liens, mechanic’s liens), easements (utility, access), restrictive covenants (HOA rules, subdivision limits), encroachments (fences, structures), missing or defective deeds, and judicial judgments recorded against prior owners.
Lenders typically require a lender’s title insurance policy and a title search. The title search produces a title report listing exceptions. Underwriters then decide whether an exception is acceptable, needs to be removed, or requires a special endorsement or payoff. Authoritative consumer guidance explains the role of title reviews and title insurance in protecting buyers and lenders (Consumer Financial Protection Bureau, 2024).
Types of title exceptions and the typical lender response
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Liens: Tax liens and mechanics’ liens are among the most serious because they are prioritized against the property. Lenders normally require liens to be paid or subordinated before closing, or they will refuse to fund (see our article on title insurance exceptions for liens).
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Easements: Utility, access, or conservation easements usually remain on the title. Many are acceptable to lenders if they are standard, documented, and do not impair the home’s value or marketability. An easement that blocks primary access or prevents necessary repairs, however, is a red flag.
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Restrictive covenants and HOA rules: These are often allowable but must be reviewed to confirm they don’t prevent the lender’s intended use (e.g., conversion to rental, structural additions). A mortgage underwriter will check for covenant conflicts with the loan program.
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Encroachments: If a neighbor’s structure encroaches on the subject property, lenders may require an agreement, a survey showing the encroachment is minor, or a resolution via boundary/quiet-title actions.
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Breaks in the chain of title or missing heir documents: These can require curative deeds, affidavits, or a quiet-title lawsuit to clear ownership before a lender will close.
Real-world impact (examples from practice)
In my 15+ years in lending and title coordination I’ve seen several recurring scenarios:
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A property with a recorded mechanic’s lien from an old contractor: the lender would not fund until the lien was paid or removed because the lien could take priority over the mortgage. The buyer negotiated a payoff with the seller and closed after the lien release recorded.
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A lot with a recorded utility easement cutting through the back yard: the lender approved the loan after confirming the easement was a standard utility right-of-way and did not affect access or value. The buyer adjusted plans for landscaping and got title insurance coverage for future disputes.
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A subdivision restrictive covenant prohibiting certain exterior remodeling that a buyer planned: the lender required the buyer acknowledge the covenant in writing, and the title company issued an owner’s policy showing the covenant as an exception, limiting future marketplace expectations.
These examples show lenders balance risk: some exceptions are managed through insurance or endorsements, others must be cured.
How title insurance treats exceptions
Title insurance policies list exceptions on the face of the commitment and policy. There are two key policy types:
- Lender’s title insurance (required in most mortgages) protects the lender’s interest up to the loan amount.
- Owner’s title insurance (optional but highly recommended) protects the buyer’s equity and ownership rights.
Some exceptions are “standard exceptions” (e.g., unrecorded rights, easements not shown by public records). Others are “specific exceptions” listed because of a discovered issue.
Title underwriters can offer endorsements to cover certain risks (e.g., survey endorsements, access coverage, or lien indemnity endorsements) but endorsements add cost and are underwriter-specific. For consumer-facing guidance on title insurance basics and what it covers, see the CFPB and the American Land Title Association resources (Consumer Financial Protection Bureau; American Land Title Association).
Typical cures and remediation options
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Payoffs and releases: The most straightforward fix for liens is payoff at or before closing and a recorded release.
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Subordination agreements: In some cases a prior lienholder will agree to subordinate to a new mortgage so the new lender’s priority is preserved.
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Curative deeds, affidavits, and court actions: Missing signatures, forged deeds, or disputes often require corrective deeds, sworn affidavits, or a quiet-title lawsuit. Quiet-title is effective but can add weeks or months to closing.
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Survey corrections or boundary agreements: If a survey reveals encroachments, neighbors can sign boundary line agreements or easement grants to resolve the issue.
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Escrow holdbacks: Lenders sometimes allow a limited holdback at closing to cure minor title issues within an agreed timeframe; this varies by lender and loan program.
What buyers should do—practical checklist
- Order or review the title commitment early—don’t wait until the final week before closing.
- Ask your lender and title company to explain each exception in plain language and whether it’s a requirement to cure or just a disclosure.
- Obtain a recent survey if the property is older or if improvements are close to lot lines.
- Secure owner’s title insurance in addition to the lender’s policy; it’s usually a one-time cost and protects your equity (see our primer on title insurance).
- If you see liens, require the seller to clear them in the purchase contract or negotiate a seller credit tied to lien payoffs.
- Work with a real estate attorney for complex title defects—some cures are legal actions and not simple administrative fixes.
Underwriter and lender red flags that commonly delay funding
- Unreleased tax liens or judgments.
- Mechanic’s liens without clear payoff plans.
- Unknown parties on title (e.g., missing spouse signatures, heirs).
- Unrecorded easements revealed on inspection but not public record.
- Boundary disputes or large encroachments that impair value or use.
Addressing these upfront reduces surprises at underwriting and decreases the risk of a postponed closing.
Timing and costs
Resolving title exceptions can range from a same-day clerical correction to several months and significant legal fees if a court action is required. Common costs include: payoff amounts for liens, attorney fees for curative work, endorsement fees from the underwriter, survey fees, and title search charges. Expect title resolution to be part of closing negotiations—sellers often clear defects, but buyers should explicitly require it in the sales contract.
Common misconceptions
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“Title insurance is optional and unnecessary”: While optional in some states, owner’s title insurance is a one-time cost that protects against hidden defects and can save large sums if a claim arises (CFPB guidance).
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“All easements are bad”: Many easements are routine and acceptable; it’s the scope and purpose that matter.
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“If the lender’s policy is issued, I don’t need an owner’s policy”: The lender’s policy protects the lender’s collateral, not the homeowner’s equity or right to occupy.
Questions to ask your title company and lender
- Which exceptions on the commitment must be removed before closing?
- Will the underwriter issue any endorsements to cover specific exceptions and at what cost?
- If a lien exists, will it be paid at closing and will the release be recorded immediately?
- What is the expected timeline for curing the current exceptions listed on the commitment?
Final practical advice
Start your title review early, include title-related contingencies in your purchase contract, and avoid assuming routine items are harmless—get confirmation in writing. Title issues are often resolvable, but they require coordination between seller, buyer, lender, and the title underwriter. In my practice, clear communication and early title review are the single best ways to prevent a delayed or blocked mortgage closing.
Sources and further reading
- Consumer Financial Protection Bureau, “Title Insurance”, consumer guidance (https://www.consumerfinance.gov/owning-a-home/title-insurance/).
- American Land Title Association, consumer resources on title insurance and common title issues (https://www.alta.org/consumer/index.cfm).
- For practical examples of title-related closing blocks, see our internal guide: Title issues that can block a mortgage closing.
Disclaimer: This article is educational and reflects professional experience; it is not legal advice. Consult a licensed real estate attorney or your lender for guidance tailored to your situation.
