Escrow & TitleIntermediateArizona Exam

A title search in Arizona reveals a 'cloud on title.' This means:

AThe property is located within a 100-year floodplain subject to federal flood insurance requirements that were not disclosed during the escrow process

BThere is an outstanding claim, lien, or encumbrance that may affect the validity of the titleCorrect

CA prior deed in the chain of title contains a description that does not match the current county assessor's parcel record, creating a gap in the recorded history

DThe title company has issued a commitment excluding coverage for a specific exception that the buyer must cure or accept before the policy can be issued at closing

Why There is an outstanding claim, lien, or encumbrance that may affect the validity of the title Is Correct

Answer B: There is an outstanding claim, lien, or encumbrance that may affect the validity of the title

A cloud on title is any outstanding claim, lien, encumbrance, or other matter that may impair the owner's clear title. Examples include unreleased mortgages, unsatisfied judgment liens, and disputed boundary lines.

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

Deed

A written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).

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.

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.

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Key Terms to Know

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.

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.

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