You receive the preliminary title report, open it up, scroll through several pages of legal descriptions and unfamiliar terminology, and eventually arrive at the exceptions.
Then comes the question: “What does this exception actually mean—and is it going to be a problem?”
It is one of the most common questions real estate brokers ask title professionals, and it is an important one. Not every exception is a problem. But every exception deserves to be understood.
First, What Is a Title Exception?
A title insurance policy protects against certain covered title risks. An exception identifies a matter that the title insurance policy will not insure against, subject to the terms and conditions of the policy.
Think of it this way: The title commitment is essentially telling you, “Here is the property we are being asked to insure, here is who currently holds title, and here are the matters affecting the property that will not be covered unless they are removed, resolved, or otherwise addressed.”
Some exceptions are routine. Others deserve considerably more attention. The important thing is not to assume that because something appears as an exception, it is automatically a deal-breaker—or that because it looks routine, it can automatically be ignored.
What Kinds of Exceptions Might You See?
Depending on the property, a title report may reference matters such as:
- Easements
- Covenants, Conditions & Restrictions (CC&Rs)
- Road or access agreements
- Utility rights
- Deeds of trust
- Judgments or liens
- Real estate taxes and assessments
- Boundary-related matters
- Homeowners association provisions
- Recorded agreements affecting the property
Each can have a very different effect on a transaction.
An easement allowing a utility company to maintain power lines is very different from an easement affecting where your buyer hopes to build a detached garage. A set of neighborhood CC&Rs may be relatively routine—until your buyer tells you they intend to use the property in a way those restrictions may prohibit. That is why simply seeing an exception isn’t enough.
The better question is: How could this particular exception affect this particular buyer, seller, property or transaction?
Pay Particular Attention to Exceptions That Don’t Match Expectations
One of the advantages of reviewing the preliminary title report early is that it can uncover things the parties may not have anticipated.
For example:
- The seller says the mortgage was paid off years ago, but a deed of trust still appears in the title report.
- A judgment appears against someone with the same or a similar name as the seller.
- The property has an access easement that the buyer didn’t know existed.
- An old agreement places restrictions on the property.
- The seller is surprised to learn another person may have an interest in the property.
- There is an issue involving a deceased owner, trust, estate or other party whose authority to convey the property needs to be established.
These don’t necessarily mean the transaction cannot close, they do mean someone needs to ask questions. And the earlier those questions are asked, the better.
Don’t Wait Until Three Days Before Closing!
This is where a preliminary title report becomes much more than another document in the transaction file. Imagine discovering a week after mutual acceptance that an old deed of trust still needs to be addressed. Now imagine discovering it three days before closing. Same title issue. Very different transaction experience.
Some title matters can be cleared quickly. Others may require documents, signatures, releases, lienholder cooperation, additional research or even legal assistance. Time is your friend.
That’s why experienced brokers should develop the habit of reviewing the preliminary title report when they receive it—not when escrow is getting ready to close.
Ask Your Buyer a Different Question
Instead of simply sending the title report and saying:
“Here is your preliminary title report.”
Consider having a conversation about the buyer’s plans for the property.
Ask questions such as:
- “Are you planning to build anything?”
- “Are you planning to operate a business from the property?”
- “Are you concerned about shared roads or access?”
- “Are you planning to add another dwelling or structure?”
- “Is there anything specific you plan to do with this property that we should be paying attention to?”
Those answers may change which title exceptions deserve additional investigation.
Remember, however, that brokers and title professionals have different roles. When an exception raises questions about a client’s legal rights or the legal interpretation of a recorded document, the client may need advice from an attorney.
What Should You Do When You Don’t Understand an Exception?
Ask! You don’t need to become a title officer. You don’t need to interpret complicated legal documents for your client. And you shouldn’t guess. Instead, contact your title team and say: “Can you help me understand why this is showing on the title report and what we need to know about it for this transaction?”
- There may be a perfectly routine explanation.
- There may be something that needs to be cleared before closing.
- There may be a document that should be reviewed more carefully.
- Or there may be a question that needs to go to an attorney.
- The important thing is identifying which one you’re dealing with before it becomes an eleventh-hour problem.
A preliminary title report shouldn’t simply be forwarded and filed away. Please use it!
When you receive it:
- Read the exceptions.
- Look for anything unexpected.
- Ask questions about anything you don’t understand.
- Consider your client’s intended use of the property.
- Address potential issues early.
The goal isn’t for a real estate broker to become a title expert, the goal is to recognize when something deserves a closer look—and know who to call when it does. Because one of the easiest ways to protect a transaction from an unpleasant surprise at closing is to ask a simple question much earlier: “What does this exception actually mean?”
This article is intended for general educational purposes and is not legal advice. Specific title matters can vary significantly by property and transaction. Questions regarding the legal effect of an easement, covenant, restriction or other recorded document should be referred to an appropriate legal professional.