Escrow & Title
A Florida buyer discovers after closing that there is an undisclosed mechanic's lien on the property from work done before closing. The buyer's title insurance company:
AWill not cover this since the buyer should have investigated mechanics liens before closing
BWill defend the buyer's title and pay off the lien up to the policy limits if it is a covered risk in the title policy✓ Correct
CCovers only liens that were recorded after the effective date of the policy
DWill only cover half the lien since the seller should have known about it
Explanation
Owner's title insurance covers title defects that existed at or before the policy's effective date (closing) but were unknown at the time. An undisclosed mechanic's lien that was recorded or arose before closing is exactly the type of risk that title insurance is designed to cover.
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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.
LienA financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.
EncumbranceAny claim, lien, charge, or liability attached to real property that affects its value or limits its use.
Abstract of TitleA condensed history of a property's title, summarizing all recorded documents and encumbrances affecting it from the earliest record to the present.
State-Specific Concepts
Mechanic's Lien
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