Escrow & Title
A Minnesota buyer purchases a home and later discovers that the prior owner had a judgment lien that was never reported and is now being claimed against the property. The buyer's owner's title insurance policy:
AWill not cover this since it is a prior owner's debt
BWill cover this since it is a title defect that was not discovered in the title search✓ Correct
COnly covers liens over $5,000
DRequires the buyer to sue the prior owner first
Explanation
An owner's title insurance policy covers title defects that existed at the time of purchase but were not discovered in the title search. A judgment lien that was on title but missed in the search is exactly the type of risk title insurance is designed to cover.
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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.
Math Concepts
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