California Real Estate Broker ExaminationTransfer of PropertyEasy
A buyer is concerned about potential hidden defects in the title of a property they are purchasing, such as forged documents or undisclosed heirs, which would not be revealed by a standard title search. What type of protection specifically covers these types of risks?
- AOwner's Title Insurance Policy
- BLender's Title Insurance Policy
- CCertificate of Title
- DAbstract of Title
Show answer & explanationAnswer & explanation
Correct answer: A. Owner's Title Insurance Policy
An Owner's Title Insurance Policy protects the buyer (owner) against financial loss due to title defects not discovered during the title search, including hidden risks like forgery, fraud, or errors in public records. The Lender's policy protects the lender.
Why the other options are wrong
- B. A lender's title insurance policy protects the lender's interest, not the buyer's equity.
- C. A certificate of title is an opinion by an attorney regarding the status of title, not an insurance policy.
- D. An abstract of title is a summary of the recorded documents affecting title, not an insurance policy.
Owner's Title Insurance Policy
An insurance policy that protects the homeowner against financial loss from covered title defects that existed at the time of purchase but were unknown.
- Protects the buyer's equity in the property.
- Covers hidden risks like forgery, fraud, undisclosed heirs, or misfiled documents.
- Paid for once at closing and remains in effect as long as the owner or their heirs retain interest.
Memory trick: Who is protected from unknown title troubles?