California Real Estate Broker ExaminationTransfer of PropertyMedium
A property buyer wants to protect themselves against potential financial losses due to defects in the title, such as forged documents, undisclosed heirs, or errors in public records, even if those defects are not discovered during the initial title search. The best way to obtain this protection is by purchasing a:
- ATitle Insurance Policy
- BHome Warranty Plan
- CMortgage Insurance Policy
- DHomeowner's Insurance Policy
Show answer & explanationAnswer & explanation
Correct answer: A. Title Insurance Policy
Title insurance protects both the buyer (owner's policy) and the lender (lender's policy) against financial loss caused by defects in the title that existed before the policy was issued, including hidden defects not found in a typical title search.
Why the other options are wrong
- B. A Home Warranty Plan covers repairs or replacement of major home systems and appliances after purchase.
- C. Mortgage Insurance protects the lender against borrower default, not problems with the property's title.
- D. Homeowner's Insurance covers damage to the property itself (e.g., fire, theft), not title defects.
Title Insurance
A policy that protects property owners and/or lenders against financial loss resulting from defects in the title to real property that existed at the time the policy was issued.
- Protects against undisclosed liens, encumbrances, forgery, fraud, errors
- Two main types: owner's policy and lender's policy
- Paid as a one-time premium at closing
- Covers defects originating before the policy date
Memory trick: Title Insurance: 'T' for 'Title' defects, 'I' for 'Insurance' protection.