Why Your Title Company Flagged an Exception, and What to Do

Buying or selling real estate in Nevada can feel straightforward until the title company sends a preliminary report showing an exception that nobody expected. Suddenly, a transaction that appeared ready to close may require additional documents, a lien release, clarification of ownership, or even legal action before the title company is willing to insure the transaction. If the exception involves a competing ownership claim, questionable deed, fraudulent conveyance, or another serious title dispute, it may be appropriate to review your situation as a Quiet Title & Real Estate Fraud matter rather than treating the exception as a routine escrow issue.

A title exception does not automatically mean that your transaction is falling apart. In Nevada, title companies search public records and identify matters that affect the property or may need to be excluded from title insurance coverage. The Nevada Division of Insurance explains that a preliminary report or commitment identifies existing encumbrances, and issues that cannot be cured may be excluded from coverage. The important question is therefore not simply why the exception appears, but what legal interest it represents, whether it can be resolved, and what happens if it remains unresolved.

What Is a Title Exception?

A title exception is a matter identified during the title examination that will not be covered by the title insurance policy in the ordinary manner. It may involve an easement, restriction, lien, judgment, recorded instrument, ownership claim, or another interest affecting the property. Some exceptions are routine and may have little practical impact on the transaction, while others can create significant problems for ownership, financing, resale, or closing.

The Nevada Division of Insurance explains that the title search examines public records concerning the property’s ownership history and related matters, including deeds, mortgages, wills, tax records, and maps. After that examination, the title company issues a preliminary report or commitment identifying existing encumbrances. This means the exception is not necessarily a newly created problem; in many cases, it is an old issue that the title search has uncovered before closing.

The wording of the exception matters. A reference to a recorded utility easement is very different from a recorded deed purporting to transfer an interest to someone who may have had no authority to convey it. Treating both as equivalent simply because the title report labels them “exceptions” can lead to poor decisions.

Why Did the Title Company Find It?

Title companies perform a historical examination of the property’s chain of title because ownership cannot be determined solely by looking at the seller’s current deed. Earlier conveyances, mortgages, judgments, liens, probate records, easements, restrictions, and other recorded instruments can affect the legal interests associated with the property.

The Nevada Division of Insurance states that title insurers search public records and, when defects or liens are found, may either cure them before issuing the policy or exclude them from coverage. That process is designed to identify title risks before the transaction is completed.

For a buyer, this can actually be beneficial. Discovering a problem before closing gives the parties an opportunity to investigate it while the transaction is still open. The seller may be able to obtain a release, correct a recording problem, satisfy a lien, obtain an affidavit, or otherwise resolve the issue. If the matter is more complicated, the parties can determine whether the purchase agreement gives the buyer a right to delay closing, demand a cure, renegotiate, or terminate the transaction.

Is Every Title Exception a Serious Problem?

Not every title exception requires litigation or should cause a buyer to walk away from a property. Some exceptions are standard matters that commonly appear in title reports and may be acceptable depending on the property’s location and intended use. A utility easement, for example, may give a utility provider access to a portion of the property without materially interfering with the buyer’s planned use of the home.

Recorded restrictions can also be acceptable if the buyer understands them and they do not interfere with the intended ownership or development plans. The important issue is whether the exception creates a legal or practical limitation that matters to the particular transaction.

The analysis changes when an exception identifies a substantial lien, competing ownership interest, unresolved judgment, questionable deed, or another document that calls the seller’s authority to convey the property into question. Those matters can affect whether the buyer will receive the title the purchase agreement contemplated and whether a lender or future buyer will be willing to rely on that title.

The title report should therefore be viewed as a starting point for investigation rather than a document that answers every legal question by itself.

Common Title Exceptions That Can Delay a Nevada Closing

Liens are among the most common exceptions that can create closing complications. A mortgage, judgment lien, tax-related claim, mechanic’s lien, or other recorded encumbrance may need to be satisfied or released before the title company will provide the desired coverage. The existence of a lien does not necessarily mean the seller cannot sell the property, but the parties generally need to determine how the lien will be handled as part of the closing process.

Easements and restrictions present a different type of issue. They may not prevent a sale, but they can affect how the property may be used. This becomes particularly important for buyers planning additions, redevelopment, access changes, or other improvements. An exception that appears harmless on a standard residential purchase may become much more important if the buyer is purchasing the property for a specific development purpose.

Ownership-related exceptions can be more complicated. For example, a prior deed may have been executed by someone whose authority to transfer the property is disputed. There may be an unresolved inheritance issue, a prior conveyance that appears inconsistent with the chain of title, or a recorded document that creates a competing claim. These situations can move beyond ordinary escrow administration and into title litigation.

What Should You Do When You Receive the Preliminary Report?

The first step is to obtain and read the actual exception language rather than relying on a verbal description of the problem. Ask the title company for the document referenced by the exception and determine exactly what was recorded, when it was recorded, who signed it, and what interest it appears to create.

You should also ask the title company what it believes needs to happen before the exception can be removed or treated as acceptable. In some cases, the answer may be relatively simple: obtain a lien release, record a corrective document, provide an affidavit, or satisfy another underwriting requirement. In other cases, the title company may tell you that it cannot remove the exception without a court order or other evidence establishing the parties’ legal rights.

That distinction is critical. A routine documentation issue and a disputed ownership claim require very different strategies.

Can the Seller Fix the Title Exception?

Often, yes, but the answer depends entirely on the nature of the exception. A seller may be able to resolve a monetary lien by paying the underlying obligation and obtaining a properly recorded release. A recording error may be corrected through an appropriate corrective instrument if the relevant parties agree and the title company accepts the correction.

A disputed ownership interest is different. If another person claims an ownership interest and refuses to release it, the seller may not be able to simply instruct the title company to remove the exception. The parties may need to investigate the competing claim, negotiate a resolution, or pursue litigation.

Nevada law expressly permits an action against a person who claims an estate or interest in real property adverse to the person bringing the action for the purpose of determining that adverse claim. This is the basic statutory foundation for a quiet title action under NRS 40.010.

When Does a Title Exception Become a Quiet Title Issue?

A title exception may become a quiet title issue when the underlying problem cannot be resolved merely through routine escrow documentation and there is a genuine dispute concerning ownership or another adverse interest in the property.

For example, suppose a buyer is purchasing a Las Vegas property and the title search identifies a previously recorded deed that appears to transfer an interest in the property to another person. If the parties cannot establish that the deed was properly authorized, released, superseded, or otherwise ineffective, the title company may be unwilling to insure over the issue without additional evidence or a court judgment.

A similar problem can arise when an owner discovers an old deed, inheritance claim, lien, or other recorded interest that clouds the property’s title. Depending on the circumstances, a quiet title action may provide a mechanism for asking the court to determine the competing claim. Under NRS 40.010, Nevada law allows an action to determine an adverse claim to real property.

The appropriate legal remedy depends on the facts, however. A quiet title lawsuit is not simply a document that a title company requests whenever an exception appears. An attorney should first determine what the exception means, who claims the interest, what evidence exists, and what relief is actually necessary.

What If the Exception Involves Fraud or a Suspicious Deed?

A suspicious deed deserves immediate attention because the consequences can extend beyond the closing itself. If a recorded instrument appears to have been forged, improperly executed, fraudulently obtained, or recorded without the true owner’s authorization, the issue may involve both title rights and potential fraud claims.

The first priority should be preserving the evidence. Copies of the questionable deed, prior deeds, purchase agreements, closing documents, correspondence, identification records, title reports, and communications with the title company may all become important in determining what occurred.

The existence of a suspicious document does not automatically establish that fraud occurred. The legal effect of a recorded instrument depends on the circumstances surrounding its creation and execution, the parties involved, and the applicable Nevada law. A real estate attorney can investigate the chain of title and determine whether litigation, corrective recording, declaratory relief, quiet title, or another remedy may be appropriate.

Can You Close With a Title Exception?

Sometimes a transaction can close with exceptions remaining on the final title policy. In fact, title insurance routinely contains exceptions for matters that are not covered. The Nevada Division of Insurance explains that when encumbrances discovered during the title search cannot be cured, they may be excluded from coverage.

The fact that a title company is willing to issue a policy does not necessarily mean every exception is harmless. The buyer should understand what the exception means and what rights or risks remain after closing. A buyer who knowingly accepts an easement that does not interfere with the property may be making a reasonable business decision. A buyer who accepts an unresolved ownership claim without understanding its consequences could be taking a much greater risk.

This is especially important when financing is involved because lenders may have their own requirements concerning title defects and insurability. The buyer should not assume that an exception is acceptable simply because the transaction remains technically capable of closing.

Should You Hire a Real Estate Attorney?

Legal review becomes particularly valuable when the exception involves ownership, fraud, an unresolved lien, an unusual deed, probate issues, a judgment, or a dispute that the title company cannot resolve administratively. A title examiner identifies and reports title issues, but determining the legal rights created by a disputed instrument can require legal analysis.

An attorney can review the chain of title, examine the documents identified in the exception, evaluate the purchase agreement and applicable contingencies, communicate with the title company, and determine whether the seller can reasonably cure the issue. If litigation is necessary, counsel can also evaluate whether a quiet title action or another claim is appropriate under Nevada law.

The timing matters. A title problem discovered after a buyer has already closed may be substantially more difficult to address than one identified while the transaction is still in escrow. Early review can help the parties understand their options before deadlines, financing commitments, and closing obligations create additional pressure.

How to Protect Yourself Before Closing

Buyers should not treat the preliminary title report as paperwork that can simply be passed over on the way to signing closing documents. Review the report carefully and ask questions about every exception that is unclear or potentially inconsistent with your intended use of the property.

If an exception is significant, obtain the underlying recorded document and understand what it actually says. Confirm whether the seller is responsible for resolving it under the purchase agreement and determine whether the title company will remove the exception, insure over it, or leave it excluded from coverage.

Most importantly, do not agree to waive a title objection merely because closing is approaching. The appropriate decision depends on the nature of the exception, the contractual rights of the parties, the availability of title insurance coverage, and the financial and legal consequences of accepting the property with the issue unresolved.

About Milan Chatterjee

This article was prepared by Milan Chatterjee, a Nevada and California licensed attorney and founder of My Real Estate Lawyer, a real estate law practice dedicated to protecting property owners, investors, landlords, homeowners, businesses, and community associations throughout Nevada.

Milan represents clients in matters involving real estate litigation, purchase and sale disputes, property transfers, quiet title actions, title disputes, boundary disputes, easement disputes, deed issues, foreclosure litigation, landlord-tenant matters, HOA disputes, and complex property ownership conflicts. He earned his Juris Doctor from UCLA School of Law and studied at New York University School of Law as a visiting student. Before entering private practice, he served as Associate Compliance Counsel at Las Vegas Sands Corporation, advising on regulatory compliance, investigations, corporate governance, and risk management. Today, he helps clients throughout Las Vegas, Reno, and Nevada protect property rights and resolve complicated real estate matters.

Frequently Asked Questions

Conclusion

A title exception on a preliminary report is not automatically a reason to cancel a Nevada real estate transaction, but it should never be dismissed without understanding what it represents. Some exceptions are ordinary and manageable, while others can reveal liens, ownership disputes, defective conveyances, or potential fraud that may materially affect the property’s title.

The Nevada Division of Insurance emphasizes that title searches are designed to identify defects and encumbrances before a title policy is issued, while Nevada law provides a judicial mechanism for determining adverse claims to real property through a quiet title action. If the exception involves a genuine ownership dispute or suspicious recorded instrument, obtaining legal advice before closing may help protect your investment and preserve your ability to resolve the problem effectively.