Title Report Red Flags: A Checklist for Buyers, Investors, and Lenders

A title report — also called a title commitment or preliminary title report — is the document that shows the state of record title to a property before a transaction closes. It discloses every lien, encumbrance, easement, restriction, and condition of record that affects ownership. Title insurance will not cover problems disclosed in the report; it only covers undisclosed defects that the title search missed.

Most buyers receive title commitments, skim them, and sign the closing papers assuming their attorney or title officer would have flagged anything important. This assumption is dangerous. Attorneys reviewing title commitments are often under time pressure; title officers are focused on insurability, not buyer protection. The buyer or investor who understands what they are looking at — and which items require follow-up — is far better positioned.

How a Title Commitment Is Structured

A title commitment (the standard ALTA form used in most US states) has a standard structure:

Schedule A: Basic transaction information — the property being insured, the proposed insured (buyer and/or lender), the amount of insurance, and the proposed vesting of title.

Schedule B-I (Requirements): Things that must happen before the title company will issue the policy. These are conditions precedent to insurance.

Schedule B-II (Exceptions): Matters to which the title insurance policy expressly does not insure. These are risks the title company is not assuming.

Jacket: The insurance policy terms and conditions.

The red flags live primarily in Schedule B-I (requirements that may be difficult to satisfy) and Schedule B-II (exceptions that may limit your property rights in ways you have not accounted for).

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Schedule B-I Red Flags: Requirements

Schedule B-I lists what must be done before the policy issues. Standard requirements are routine — pay off the existing mortgage, record the deed, pay the premium. But some requirements signal problems.

Outstanding Mortgages and Liens That May Be Difficult to Discharge

Red flag: A lien appears in Schedule B-I that cannot easily be satisfied at closing. Examples:

• A mortgage to a hard-money lender that is in dispute between the borrower and lender
• A mechanics' lien filed by a contractor for unpaid work — the amount may be disputed, and releasing a mechanics' lien before closing may require litigation
• A judgment lien against the seller that exceeds the seller's equity in the property
• An IRS tax lien — federal tax liens take priority over many other encumbrances and require IRS cooperation to discharge

What to do: Determine whether the lien can be satisfied at closing from proceeds. If the amount is disputed, understand whether the title company will insure over it, escrow funds pending resolution, or require a completed release before closing.

Pending Probate or Estate Issues

Red flag: The Schedule B-I requires evidence of probate proceedings or authority to convey from an estate. If the seller inherited the property and probate is not complete, the seller may not have legal authority to convey clear title.

What to do: Confirm the probate status and timeline. A seller without proper authority to convey cannot give you good title regardless of what a purchase agreement says.

Gaps or Breaks in the Chain of Title

Red flag: The title examiner identifies a gap — a period where there is no recorded deed conveying the property — or a break in the chain where title passed by means not fully documented. The title company may require a quitclaim deed from the missing party or an affidavit.

What to do: Understand what the title company is requiring and whether it can be obtained before closing.

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Schedule B-II Red Flags: Exceptions to Coverage

Schedule B-II lists the matters to which the title insurance policy does not apply. Some exceptions are universal and benign; others signal problems that affect your use and value of the property.

Easements That Restrict Use

Red flag: An easement benefiting an adjacent property owner or utility runs through the developable portion of the property — directly through where a buyer planned to build. Common types:

• Utility easements: Power, gas, water, or sewer easements crossing the property. Building structures within these easements is typically prohibited.
• Drainage easements: Storm water and drainage easements may occupy significant portions of otherwise developable land.
• Access easements: A neighbor may have a recorded easement to cross your property to reach theirs — you cannot obstruct this.
• Pipeline easements: Significant setback and development restrictions; may affect financing if the lender's collateral is materially impaired.

What to do: Map all easements against the survey to understand their location and effect on your intended use. Obtain the underlying easement document (not just the exception description) to understand what activities are restricted within the easement area.

Covenants, Conditions, and Restrictions (CC&Rs)

Red flag: The property is subject to recorded CC&Rs that restrict use, appearance, or activities in ways that conflict with your intended use. CC&Rs commonly appear in:

• Planned residential communities (no business activity, height restrictions, architectural requirements)
• Commercial parks and industrial areas (permitted use restrictions, signage limitations)
• Historic districts (restrictions on alterations to building exteriors)

What to do: Obtain and read the full CC&R document. CC&R violations can result in injunctions, fines, or forced removal of non-conforming improvements — long after closing.

Boundary Disputes and Survey Conflicts

Red flag: The title commitment exception references a survey conflict, overlap with an adjacent property, or a prior survey that differs from the current survey. This can signal:

• A fence line that does not match the legal boundary
• An encroachment — a neighbor's building or structure crosses onto your property, or yours crosses onto theirs
• A gap parcel between two recorded parcels

What to do: Obtain a current ALTA/NSPS survey and have it reviewed by the title company and a surveyor. Encroachments may require a boundary line agreement with the neighbor, a quitclaim deed, or litigation to resolve.

Mechanic's Liens (Inchoate/Unrecorded)

Red flag: Even if no mechanic's lien appears in the commitment, the title company often adds an exception for unrecorded mechanic's liens — work done on the property for which a lien could still be filed. This is particularly relevant when recent construction or renovation work has been done.

What to do: Require the seller to provide lien waivers from all contractors and subcontractors who worked on the property. For new construction, confirm all required lien waivers are collected at each draw.

HOA Assessments and Violations

Red flag: Outstanding HOA dues, special assessments, or recorded violations of HOA rules. Some HOAs have superpriority lien status for unpaid assessments under state law — meaning they can foreclose even ahead of a first mortgage.

What to do: Verify that all HOA assessments are current. Request a payoff statement from the HOA for any outstanding amounts. Confirm whether any special assessments have been approved for the future.

Mineral Rights Exceptions

Red flag: The property owner does not own the mineral rights — they were severed from the surface estate at some point in the chain of title. In states with significant mineral activity (Texas, Pennsylvania, Ohio, Colorado), a mineral rights severance can affect the surface use of the property through drilling rights, pipeline easements, and surface use agreements.

What to do: Determine who owns the mineral rights, whether they have been leased, and what surface use rights the mineral rights owner has under applicable state law.

Unrecorded Leases

Red flag: The title commitment excepts "rights of parties in possession" or "unrecorded leases." This means there may be tenants with enforceable rights that will not be disclosed by the public record.

What to do: Conduct a physical inspection and inquiry to identify all parties in possession. Obtain estoppel certificates from all tenants confirming the terms of their tenancy.

Environmental Matters

Red flag: The title commitment may except environmental liens or conditions. Some states have environmental cleanup liability that can attach as a lien to contaminated property and take priority over other encumbrances.

What to do: Obtain a Phase I Environmental Site Assessment for any commercial or industrial property. A Phase I will identify recognized environmental conditions that may require a Phase II investigation.

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Commercial Property-Specific Red Flags

For commercial real estate acquisitions, additional title exceptions require attention:

Subdivision or lot split issues: A commercial property assembled from multiple smaller parcels may have restrictions preventing further subdivision or creating setback complications.

Reciprocal Easement Agreements (REAs): Retail shopping centers often have REAs among the various property owners establishing shared parking, access, and maintenance obligations. Review the REA to understand your obligations and the rights of other parties.

Ground lease superiority: If the property sits on a ground lease (the land is leased, not owned), all improvements revert to the ground lessor at lease expiration. The ground lease terms — remaining term, renewal options, subordination — are critical.

Restrictive covenant violations: An existing improvement that violates a recorded covenant may be subject to mandatory removal by the covenant beneficiary — even if the violation predates your purchase.

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Title Report Review Checklist

Schedule A:

• [ ] Property description matches what you are purchasing
• [ ] Proposed insured matches your acquisition entity
• [ ] Vesting matches your intended ownership structure (individual, LLC, trust)

Schedule B-I:

• [ ] All outstanding mortgages can be satisfied at closing from proceeds
• [ ] No judgment or tax liens that exceed available equity
• [ ] No unresolved probate or authority issues
• [ ] No mechanics' liens or unresolved construction claims

Schedule B-II:

• [ ] All easements mapped against survey — no easements through intended development areas
• [ ] CC&Rs obtained and reviewed — no restrictions that conflict with intended use
• [ ] No boundary disputes or survey conflicts
• [ ] HOA assessments current, no recorded violations
• [ ] Mineral rights status determined (in mineral-active states)
• [ ] All parties in possession identified and tenancy confirmed
• [ ] Phase I ESA obtained for commercial/industrial property

Key Real Estate Terms

• Due Diligence: The investigation process during which title is reviewed and exceptions are evaluated
• Indemnification: Seller indemnification obligations for disclosed encumbrances in the PSA
• Governing Law: State law governing title insurance and real property rights varies significantly

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Upload any title commitment or title report to Doc and Tell and ask specific questions about the exceptions — "Summarize all Schedule B-II easements" or "What liens must be discharged before closing?" — with citations to the exact commitment language.