Escrow & Title
A Washington buyer purchases a property and later discovers that the prior owner had an unpaid IRS tax lien that wasn't paid at closing. The buyer's title insurance policy will:
ANot cover federal tax liens because they are government encumbrances
BCover the buyer's loss if the lien was a defect existing before the policy date✓ Correct
COnly cover state tax liens, not federal IRS liens
DRequire the buyer to sue the IRS directly
Explanation
An owner's title insurance policy covers losses from title defects existing at or before the policy date, including federal tax liens (IRS liens) that were not discovered during the title search or were not properly paid off at closing.
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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.
Math Concepts
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