When you buy a home or refinance a property, a title exception is a finding that something on the property's record doesn't match the standard insurance policy—and it can hold up your closing or cost you thousands to fix. Understanding what these exceptions mean and which ones are deal-breakers will save you time, money, and stress during escrow. Here's what every buyer and property owner needs to know.
What Is a Title Exception?
A title exception is any claim, lien, covenant, or condition that affects the property but isn't covered by standard title insurance. When the title company issues a preliminary report (also called a commitment), they list exceptions—both standard ones (like taxes and easements) and specific ones (like unpaid mortgages, judgment liens, or restrictive covenants). Not all exceptions are problems, but some can prevent a sale from closing until they're resolved.
Standard Exceptions vs. Specific Exceptions
Standard exceptions appear on nearly every preliminary title report. These include:
- Property taxes not yet due
- Utility easements for power lines or water pipes
- Covenants, conditions, and restrictions (CC&Rs) from the original developer
- Public roads and rights of way
- Liens for municipal improvements
Most lenders and buyers accept these as normal. They're typically low-risk and documented in public records.
Specific exceptions are red flags. These are unique to your property and might include:
- Unpaid property taxes or liens
- Mechanic's liens from construction work
- Judgment liens from court cases
- Easements granted to neighbors
- Deed restrictions limiting how you can use the property
- Previous owner's mortgage or deed of trust still on record
These require investigation and often resolution before closing.
Which Exceptions Actually Matter
Not every exception stops a closing, but your lender will have requirements. Most conventional lenders won't approve a loan if there are:
- Federal tax liens (IRS claims for unpaid income tax)
- Judgment liens exceeding a certain amount (often $5,000–$10,000)
- Mechanic's liens from recent unpaid contractors
- Unpaid property taxes or HOA dues in arrears
An exception that doesn't block financing might still concern you as a buyer. For example, a neighboring property might have an easement to cross your driveway—legally permitted but personally inconvenient. This is where your title company and real estate attorney become invaluable. They'll explain the real-world impact, not just the legal language.
How Exceptions Get Resolved
Once exceptions are flagged, your title company's job is to clear them before closing. Common resolution methods include:
- Payoff letters: The title company pays outstanding liens directly at closing (deducted from seller proceeds)
- Title insurance exceptions: The underwriter agrees to insure over the exception with a specific endorsement
- Seller remediation: The seller removes the exception through their own action (filing a release of lien, for example)
- Affidavits: If a lien holder can't be located, the title company may issue an affidavit of non-payment after a required search period (30–90 days)
The timeline depends on the exception type. Straightforward liens typically clear in 7–10 days; missing lien holders or restrictive covenants can take 4–6 weeks.
What to Do When You See Exceptions
- Review the preliminary report carefully. Don't assume your agent or escrow officer explained everything clearly.
- Ask your title company to explain each exception in plain English. They should tell you whether it's typical, whether it affects insurability, and whether it impacts the property's use or value.
- Hire a real estate attorney if you're unsure. For $300–$800, they can review exceptions and advise you on risk (essential if you're in a state that uses attorneys in closings).
- Get a written commitment from the seller to cure exceptions before you waive contingencies. Don't rely on verbal promises.
- Check if your lender has issued a "Conditional Commitment" listing acceptable exceptions before you remove your inspection contingency.
Timeline Expectations
- Preliminary title report issued: 3–5 business days after title search ordered
- Resolution timeline: 7–30 days for standard issues; 30–60 days if affidavits or unusual searches are needed
- Final title policy issued: At closing
Services like Mercoly help you find and compare trusted title and escrow providers who communicate clearly about exceptions and stick to closing timelines—saving you the headache of deciphering reports alone.
Frequently Asked Questions
Q: Can I close even if there are title exceptions? Yes, if your lender approves them and the title company issues the final policy, closing can proceed. Some exceptions (like standard easements) almost never block a sale.
Q: How much does it cost to clear an exception? It depends on the exception. Payoff liens use the seller's proceeds, so you don't pay. Affidavits typically cost $100–$500 per item. Restrictive covenant removal can range from $500–$2,000+ if legal action is required.
Q: What happens if an exception isn't resolved by closing? Closing is postponed, sometimes for weeks. Some sellers and buyers agree to close in escrow with funds held until resolution, but this varies by state and lender requirements.
Start by requesting a preliminary title report early in your purchase or refinance—the sooner you know about exceptions, the sooner you can address them.