CHCP Post-Closing Procedures & Recording 5 — Questions and Answers
Question 1: A buyer discovers six months after closing that a recorded easement was not disclosed during the transaction. Which remedy is most appropriate?
- File a claim under the owner's title insurance policy (Correct answer)
- Sue the county recorder for failing to disclose the easement
- Request the seller re-deed the property
- Demand a full refund of closing costs
Correct answer: File a claim under the owner's title insurance policy
Owner's title insurance covers losses from recorded easements that were not discovered or disclosed prior to closing.
Question 2: Which of the following statements is TRUE about a 'chain of title'?
- It only covers the last five years of ownership
- It is a chronological history of all recorded instruments affecting a property (Correct answer)
- It is maintained solely by the title insurance company
- It is created at closing and does not include historical records
Correct answer: It is a chronological history of all recorded instruments affecting a property
The chain of title is the complete chronological sequence of all recorded transfers and encumbrances affecting a parcel from its original grant to the present.
Question 3: When wiring seller proceeds after closing, what is the MOST critical verification step to prevent fraud?
- Verify wire instructions verbally with the seller using a known phone number on file (Correct answer)
- Accept wire instructions sent via email without confirmation
- Use the wire instructions provided at the closing table only
- Allow the buyer's agent to provide the seller's wire instructions
Correct answer: Verify wire instructions verbally with the seller using a known phone number on file
Wire fraud is a major risk; closing agents should always verify wire instructions by calling the seller at a previously verified number, not relying solely on emailed instructions.
Question 4: What document formally transfers the seller's existing title insurance policy coverage to a new buyer?
- An endorsement to the original policy
- A substitution agreement
- A new owner's policy issued in the buyer's name (Correct answer)
- A policy assignment form
Correct answer: A new owner's policy issued in the buyer's name
Owner's title insurance policies are not transferable; the new buyer must obtain a new policy issued in their name to have coverage.
Question 5: A closing agent receives loan funds from the lender before the loan documents are signed. The proper action is to:
- Disburse immediately to avoid holding costs
- Hold funds in a segregated trust account until all documents are properly executed (Correct answer)
- Return the funds to the lender immediately
- Apply the funds to closing costs right away
Correct answer: Hold funds in a segregated trust account until all documents are properly executed
Loan funds must be held in a segregated trust or escrow account and may not be disbursed until all closing conditions, including document execution, are met.
Question 6: Which post-closing action protects a lender if the borrower defaults shortly after closing due to an undisclosed second mortgage?
- Filing a lis pendens
- The lender's title insurance policy covering priority issues (Correct answer)
- Demanding a personal guaranty retroactively
- Recording a deed of reconveyance
Correct answer: The lender's title insurance policy covering priority issues
A lender's title insurance policy (loan policy) covers the lender for losses arising from undisclosed liens or encumbrances that impair the mortgage's priority.
Question 7: An IRS Form 1099-S is required at closing primarily to report:
- Mortgage interest paid by the buyer
- Proceeds from real estate transactions to the IRS (Correct answer)
- Transfer taxes paid to the state
- Title insurance premiums charged
Correct answer: Proceeds from real estate transactions to the IRS
IRS Form 1099-S is filed by the closing agent to report the gross proceeds received by the seller in a real estate transaction for tax purposes.
CHCP Post-Closing Procedures & Recording 5
A buyer discovers six months after closing that a recorded easement was not disclosed during the transaction.
Which remedy is most appropriate?