ALTA ALTA Risk Management 1 — Questions and Answers
Question 1: What is the primary purpose of risk management in the title insurance industry?
- To maximize premium revenue regardless of risk
- To identify, assess, and mitigate potential title defects and losses before and after policy issuance (Correct answer)
- To eliminate the need for title searches
- To replace the underwriting process
Correct answer: To identify, assess, and mitigate potential title defects and losses before and after policy issuance
Risk management in title insurance focuses on identifying potential title defects and implementing measures to prevent losses before and after policies are issued.
Question 2: Which of the following is a common fraud scheme that title companies must guard against?
- Seller requesting a home warranty
- Wire fraud involving diverted closing funds (Correct answer)
- Buyer requesting a survey endorsement
- Lender requiring title insurance
Correct answer: Wire fraud involving diverted closing funds
Wire fraud, where cybercriminals intercept closing communications and redirect funds to fraudulent accounts, is one of the most significant fraud threats facing title companies today.
Question 3: What is 'title plant' in the context of title risk management?
- A type of property encumbrance
- A repository of title records maintained by a title company for efficient searching (Correct answer)
- A federal database of all recorded deeds
- A type of title policy endorsement
Correct answer: A repository of title records maintained by a title company for efficient searching
A title plant is a private repository of indexed title records maintained by a title company or agency that enables faster and more accurate title searches to reduce risk.
Question 4: Under ALTA Best Practices, what must a title company do to protect customer non-public personal information (NPI)?
- Share NPI only with affiliated companies
- Implement written information security policies and procedures to safeguard NPI (Correct answer)
- Store NPI in paper files only
- Disclose NPI to any requesting party upon written request
Correct answer: Implement written information security policies and procedures to safeguard NPI
ALTA Best Practices Pillar 3 requires title companies to adopt and maintain written policies and procedures to protect customer NPI from unauthorized access or disclosure.
Question 5: What is a 'gap' risk in title insurance?
- A survey deficiency along a boundary line
- The risk that a lien or encumbrance is recorded between the effective date of the title commitment and the date of recording the insured instrument (Correct answer)
- A gap in the chain of title going back more than 60 years
- The difference between appraised value and purchase price
Correct answer: The risk that a lien or encumbrance is recorded between the effective date of the title commitment and the date of recording the insured instrument
Gap risk refers to the period between the commitment date and the recording date during which liens or other encumbrances could be filed against the property before the insured deed or mortgage is recorded.
Question 6: How does a title company typically manage gap risk at closing?
- By requiring the seller to hold back 10% of proceeds
- By recording the deed and mortgage simultaneously or obtaining a gap indemnity agreement (Correct answer)
- By refusing to close until all prior liens are paid
- By requiring the buyer to purchase additional hazard insurance
Correct answer: By recording the deed and mortgage simultaneously or obtaining a gap indemnity agreement
Title companies manage gap risk by recording documents as quickly as possible after closing or by obtaining an indemnity agreement from the seller covering any intervening liens.
ALTA ALTA Risk Management 1
What is the primary purpose of risk management in the title insurance industry?