The survey comes back eleven days before closing. Everything looks normal until you get to the plat drawing, where the surveyor has drawn the rear fence line about three feet inside the neighbor’s parcel for the entire depth of the lot. There is a note in the margin: fence encroaches onto adjoining property. Your title agent emails you the survey and the revised commitment at the same time, and the commitment now has a new item on Schedule B that was not there last week.
Nothing about the house changed. The rent did not change. Your ratio did not change. But you now have a title problem that can delay a closing by two weeks or kill it outright, and most investors have no idea which of those two it is going to be when they first read the email.
Here is what an encroachment actually is, how underwriting treats it, and what the four realistic outcomes look like.
An encroachment is a possession problem, not a condition problem
An encroachment is any physical improvement that crosses a property boundary. A fence three feet over. A detached garage whose eave overhangs the line. A concrete driveway poured two feet into the neighbor’s side yard. A retaining wall holding up the neighbor’s grade but sitting on your dirt. A shed that someone put in a back corner twenty years ago without measuring anything.
The thing that makes an encroachment different from a repair item is that it is not about the condition of the property. A roof with eight years left is a condition problem and it gets handled through the appraisal and the insurance file. An encroachment is a question about who owns what, and that lands squarely in title.
Direction matters more than most investors expect. There are two cases and they are not symmetrical:
Their improvement encroaches onto your property. The neighbor’s fence, shed, or driveway sits partly on the land you are buying. This is the one people worry about less and should worry about more. You are paying for a parcel and part of it is occupied by somebody else. If that occupation has gone on long enough under state law, the neighbor may eventually have a claim to that strip. You are buying a boundary dispute along with the house.
Your improvement encroaches onto their property. The fence you are inheriting sits on the neighbor’s land. The exposure here is that the neighbor can demand removal. If the encroaching thing is a fence, that is an afternoon and some labor. If it is the corner of the garage, it is a different conversation entirely.
What title does with it, and why Schedule B is the part that matters
Title insurance is the mechanism that decides whether an encroachment is a nuisance or a deal-breaker, so it is worth understanding how the policy is built. The commitment has two schedules that matter here. Schedule A says what is being insured and who owns it. Schedule B lists the exceptions, meaning everything the policy specifically does not cover.
When a survey turns up an encroachment, the title company’s default move is to add a survey exception to Schedule B naming it. That exception says, in effect: we insure your title to this parcel, except we take no responsibility for this fence situation. If a dispute over that strip ever costs you money, the policy does not respond.
An encroachment is not the only thing that lands on Schedule B, and it is worth knowing the neighbors it keeps: an old unreleased mortgage or judgment on title is the other item that routinely surfaces on an investor file, and the strength of what the seller is conveying is a separate question covered in which deed you actually get at closing. A lender will usually accept a policy with a minor survey exception on it. A lender will not accept a policy that excepts something which could force the removal of a structure or cut off access, because the collateral the loan is secured by would be worth less than the appraisal says it is. This is the line underwriting is actually drawing, and it explains the outcomes below.
If you have not read a commitment closely before, start with our walkthrough of what the lender’s title policy covers and why you want your own owner’s policy. The short version is that the lender’s policy protects the loan amount, not your equity, and on an encroachment file that distinction gets expensive fast.
The endorsement is the fix nobody tells you about
The thing that resolves most encroachment files is not a lawsuit or a new fence. It is an endorsement.
A title endorsement is an add-on to the policy that insures over a specific risk the base policy excepted. On an encroachment, the relevant one is generally a survey or encroachment endorsement in which the title underwriter agrees to insure against loss caused by a forced removal of the encroaching improvement. The exception stays on Schedule B and the endorsement sits on top of it saying the underwriter will pay if the risk actually materializes.
Whether the underwriter will issue it depends on how bad the encroachment is and what the title company can document. A fence three feet over on a side yard with no structure involved is routine and often gets insured over for a few hundred dollars. A garage foundation crossing the line is a much harder ask and sometimes gets refused outright.
Endorsements are one of the cheapest risk transfers available on an investor file and almost nobody asks for them. We wrote up which title endorsements are worth paying for on an investor loan, and the encroachment endorsement is near the top of that list. Ask your title agent whether the underwriter will issue it before you start negotiating with a seller about moving a fence.
What the appraiser does, which is usually nothing, until it is something
Most encroachments never reach the appraisal. The appraiser is measuring the house and pulling rent comps, not surveying the lot. A fence on the wrong line does not show up in the report at all.
It becomes a valuation issue in two specific situations.
The first is when the encroachment removes usable land. If a neighbor’s paved parking area takes up a quarter of a lot that was already small, the appraiser may adjust the site value downward, because the market would pay less for the usable parcel than for the recorded one. On a tight lot in a market where off-street parking carries real weight, that adjustment can be meaningful.
The second is when the encroaching structure is the subject’s own and sits in a required setback. That can make the improvement a legal non-conforming use, and some appraisers will note it and some lenders will treat it as a marketability issue. This is adjacent to what happens with unpermitted finished square footage, where the question is not whether the space exists but whether it can be counted and insured.
If the appraisal does come back low because of a site adjustment, the problem stops being a title problem and becomes a loan-sizing problem. That is the version that costs real money, so it is worth walking through the arithmetic.
The DSCR math, and the part of it that actually moves
Take a straightforward single-family rental purchase at 245,000 dollars. You are putting 25 percent down, so the loan is 183,750 dollars. Call the rate 7.25 percent on a thirty-year amortization. Principal and interest come to roughly 1,253 dollars a month. Taxes are 3,200 dollars a year, which is 267 dollars a month, and the landlord policy is 1,500 dollars a year, or 125 dollars a month. Total monthly obligation is about 1,645 dollars.
The lease is signed at 2,050 dollars. Divide 2,050 by 1,645 and the ratio is 1.25. That is a comfortable file. If you want to run your own version of this before you are under contract, the DSCR deal calculator does the same arithmetic, and how to calculate DSCR walks through what belongs in the denominator and what does not.
Now add the encroachment. Notice first what does not change: the rent is the same and the taxes and insurance are the same, so if the loan amount holds, the ratio holds at 1.25. An encroachment is not a DSCR event. It is a cash-to-close and timeline event, and that is the useful thing to internalize.
Here is where it bites. Suppose the appraiser does make a site adjustment and the value lands at 238,000 dollars instead of 245,000. Your loan was sized at 75 percent of value, and 75 percent of 238,000 is 178,500 dollars. The loan comes down by 5,250 dollars and that number comes out of your pocket at the table. Your payment actually improves, since principal and interest on 178,500 dollars is about 1,218 dollars and the total obligation drops to roughly 1,610 dollars, which pushes the ratio to 1.27. You have a better ratio and 5,250 dollars less cash. Most investors would rather have the cash.
The other version is a re-trade. If the seller agrees to come down 6,000 dollars to offset the risk and the appraisal supports 245,000, your loan at 75 percent of the new 239,000 dollar price is 179,250 dollars, your total obligation is about 1,615 dollars, and the ratio moves to 1.27. Same ratio improvement, but here you also brought less cash, because the down payment fell with the price. That asymmetry between a low appraisal and a price reduction is the single most useful thing on this page.
And if the fix is an escrow holdback, say 4,500 dollars held back to move the fence after closing, that is pure cash to close with no ratio effect at all. Holdbacks on a rental file work much like the ones described in a DSCR repair escrow when the appraisal comes in subject to repairs, and the money is real money even though it never touches the payment.
The four outcomes, ranked by how often they happen
One, the title company insures over it and you close on time. This is the most common outcome by a wide margin on fences, driveways, and sheds. The exception goes on Schedule B, the endorsement goes on top, you pay a modest premium, and the file moves. If your title agent has not raised the endorsement, raise it yourself.
Two, the parties sign a boundary line agreement or an encroachment agreement. Recorded, consented to by both owners, and it converts an undefined risk into a defined one. The neighbor agrees the fence may stay, or agrees it will be removed at some future trigger. Title underwriters like this because it is documented, and it often unlocks an endorsement they would not otherwise issue. It takes a cooperative neighbor and a week or two, which on an investment purchase means an extension request.
Three, the encroachment gets cured before closing. Fence moved, shed relocated, driveway cut back. Fine for anything portable. Not realistic for anything with a foundation. Who pays is a negotiation, and the leverage usually sits with whoever has the shorter timeline.
Four, the file dies. This is uncommon and almost always involves a structure rather than a fence. A garage sitting partly on the neighbor’s parcel with an uncooperative neighbor and an underwriter who will not insure over it is not a solvable problem in a thirty-day escrow. The honest answer at that point is to walk, and to be glad the survey caught it instead of the next buyer’s survey catching it three years later when you are the one selling.
Why the survey is the thing to spend money on
None of the above happens if nobody orders a survey, which is exactly why investors who skip it keep finding out about encroachments at the worst possible moment. Whether a survey is required on your purchase depends on the state, the title underwriter, and sometimes just how old the last one is. We laid out the triggers in when a rental purchase needs a new survey.
If a survey is optional on your file and the property has an old fence, any outbuilding, a shared driveway, or a lot line you cannot see, order it anyway. A few hundred dollars for a survey against the cost of discovering a garage over the line after you own it is not a close call.
Boundary problems also travel in packs with other lot-line issues. A property with an encroachment frequently also has an access question, and shared driveways, private roads, and access easements covers that family of problems. If the parcel geometry itself is unusual, for instance a house and a side lot carried separately, financing a rental that sits on two tax parcels is the closer read.
What to do in the first forty-eight hours
When the survey lands with an encroachment on it, there is a sequence that saves the most time.
Read the actual survey, not the summary email. You want to know what is encroaching, in which direction, by how much, and whether it has a foundation. Those four facts determine everything downstream.
Ask the title agent one question, in writing: will the underwriter issue an encroachment endorsement, and at what cost. Do not ask whether there is a problem. Ask for the endorsement decision. That answer arrives faster and tells you more.
Tell your lender the same day. An encroachment disclosed on day eleven with a plan attached is a routine file. The same encroachment surfacing on day twenty-six because nobody mentioned it is an extension, and extensions on an investor purchase have a way of costing more than the fence ever would.
Then decide whether the strip of land matters to the economics. Three feet of side yard on a lot with room to spare is noise. Three feet that contains the only off-street parking is not. The underwriting answer and the investment answer are two different questions, and only one of them is somebody else’s to make.
If you are working through a purchase with a boundary question on it and want a straight read on whether it is financeable before you spend money on an extension, get in touch and we will tell you which of the four outcomes your file looks like.
FMC Capital is a Pittsburgh-based mortgage brokerage. We place loans on rentals and flips across Pennsylvania and additional states. NMLS #1840537. Loan terms, rates, and program parameters vary by lender and borrower profile and are subject to change. Nothing here is a commitment to lend, and nothing here is legal advice. Boundary and title questions should be reviewed by a licensed attorney in the state where the property sits.