Escrow & Title
A buyer who receives a title insurance policy discovers after closing that there is a judgment lien from the previous owner's unpaid debt. The title insurance company will:
ARequire the buyer to pay the lien
BDefend the buyer's title and pay the claim up to the policy amount✓ Correct
CCancel the policy
DTransfer the claim to the seller
Explanation
If a pre-existing title defect (such as a prior judgment lien) that should have been caught in the title search is discovered, the title insurance company will defend the insured's title and pay claims up to the policy limit.
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Key Terms to Know
Lien
A financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.
Title InsuranceInsurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
EncumbranceAny claim, lien, charge, or liability attached to real property that affects its value or limits its use.
Chain of TitleThe sequential record of all transfers of ownership for a piece of property from the original patent holder to the present owner.
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