Escrow & Title
A Minnesota buyer purchases a home with a title insurance policy. After closing, they discover the previous owner's contractor had filed a mechanic's lien that was not discovered in the title search. The title insurance:
ADoes not cover mechanic's liens since they are excluded
BMay cover the lien if it was not listed as an exception in the policy✓ Correct
COnly covers recorded mechanic's liens over $5,000
DRequires the buyer to sue the previous owner first
Explanation
Title insurance covers title defects that were not known or listed as exceptions in the policy. If a mechanic's lien was not discovered in the title search and was not listed as an exception, the title insurance may cover the loss.
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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.
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.
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
State-Specific Concepts
Mechanic's Lien
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