National Real Estate Exam (PSI)Transfer of TitleMedium
A buyer purchases an owner's title insurance policy at closing. Which statement best describes the protection this policy provides?
- AIt protects the lender's mortgage investment and expires once the loan is paid off
- BIt insures against physical defects in the home's construction
- CIt protects the buyer against covered title defects that existed before the policy date, for as long as they or their heirs hold an interest
- DIt guarantees the property is free from future zoning changes
Show answer & explanationAnswer & explanation
Correct answer: C. It protects the buyer against covered title defects that existed before the policy date, for as long as they or their heirs hold an interest
An owner's title insurance policy protects the buyer (and heirs) against covered defects that existed prior to the policy date, such as forged documents or undisclosed liens, and remains in effect as long as they retain an interest in the property, usually for a one-time premium.
Why the other options are wrong
- A. That description fits a lender's title policy, not an owner's policy.
- B. Title insurance covers ownership issues, not physical/structural defects (that's a home inspection/warranty matter).
- D. Title insurance does not cover future zoning or land-use changes.
Owner's Title Insurance Policy
An insurance policy protecting a property buyer against financial loss from title defects that existed before the policy's effective date.
- Paid as a one-time premium at closing
- Remains in force as long as owner or heirs hold interest
- Distinct from lender's policy, which only protects the loan balance
Memory trick: Owner's policy = 'my shield forever'; Lender's policy = 'shield till loan's over.'