Escrow & TitleIntermediateAlabama Exam

What is the purpose of title insurance in a real estate transaction?

ATo insure the physical condition of the property
BTo protect against financial loss due to defects in the title that existed prior to the policy dateCorrect
CTo guarantee the property will appreciate in value
DTo protect the buyer against future zoning changes

Why To protect against financial loss due to defects in the title that existed prior to the policy date Is Correct

Answer B: To protect against financial loss due to defects in the title that existed prior to the policy date

Title insurance protects the insured against losses from title defects, liens, encumbrances, and other problems that arose prior to the policy's effective date. It is a one-time premium that covers the insured for as long as they hold an interest in the property.

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

Encumbrance

Any claim, lien, charge, or liability attached to real property that affects its value or limits its use.

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 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.

Zoning

Local government regulations that control land use by dividing areas into zones specifying permitted uses, building sizes, and densities.

People Also Study

Related Alabama Questions

Math Concepts

Profit & Loss

Study This Topic

Property Ownership Guide

Practice More Alabama Real Estate Questions

1,500+ questions covering all exam topics. Start free — no signup required.

Take the Free Alabama Quiz →