Escrow & TitleIntermediateAlabama Exam

A lender's title insurance policy protects:

AThe buyer's equity

BThe lender's security interest up to the outstanding loan balanceCorrect

CThe seller from any future claims

DBoth the buyer and the lender equally, under typical circumstances

Why The lender's security interest up to the outstanding loan balance Is Correct

Answer B: The lender's security interest up to the outstanding loan balance

A lender's (mortgagee's) title policy protects the lender's interest — the outstanding loan balance — in the event a title defect is discovered. It does not protect the buyer's equity; the buyer needs a separate owner's policy for that.

Exam Tip: Escrow & Title

Escrow questions test the neutral third-party role and the sequence of closing events. Remember that the escrow agent acts as a dual agent for both buyer and seller and cannot advocate for either side.

Key Escrow & Title Terms in This Question

Title Insurance

Insurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.

People Also Study

Key Terms to Know

Title Insurance

Insurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.

Chain of Title

The sequential record of all transfers of ownership for a piece of property from the original patent holder to the present owner.

Short Sale

A sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Math Concepts

Equity Calculation

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Property Ownership Guide

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