What happens if a title defect is discovered the morning of closing that wasn't caught earlier?

A newly discovered title defect on closing morning has to be assessed for how serious it actually is before deciding what to do next, since not every issue is significant enough to stop a closing. Minor, easily explained items may be resolved quickly, while something that genuinely affects marketable title, such as an unexpected lien or a boundary problem, is a different matter entirely.

Depending on what is found, your lawyer's options include getting the seller to clear the defect before closing, arranging an undertaking for the seller's lawyer to clear it shortly afterward with a holdback protecting you in the meantime, relying on title insurance to cover the specific risk if a policy is in place or can still be bound, or, if the defect is serious enough, advising you not to close until it is properly resolved. Because the right path depends heavily on exactly what the defect is and how it affects your specific property, this is not a decision to make on your own; your lawyer needs to review it and explain the real risk before you decide how to proceed.