CHCP Title Insurance & Escrow Procedures 2 — Questions and Answers
Question 1: A buyer discovers after closing that a neighbor's fence encroaches 2 feet onto the purchased property. Which title insurance policy would most likely cover this loss?
- Standard owner's policy only
- Extended owner's policy with survey coverage (Correct answer)
- Lender's policy only
- Neither policy covers boundary disputes
Correct answer: Extended owner's policy with survey coverage
An extended owner's policy (ALTA Homeowner's Policy) covers survey-related issues like encroachments that a standard policy typically excludes.
Question 2: In a dry closing state, what is the key difference from a wet closing?
- Funds are wired before documents are signed
- Documents are signed but funds are not disbursed at the closing table (Correct answer)
- The lender does not attend the closing
- Title insurance is not required
Correct answer: Documents are signed but funds are not disbursed at the closing table
In a dry closing, all documents are executed at the table but disbursement of funds is delayed until the lender reviews and approves the package.
Question 3: An escrow agent receives conflicting instructions from buyer and seller after a failed closing. What is the proper course of action?
- Follow the seller's instructions as they hold title
- Follow the buyer's instructions as they provided funds
- Interplead the funds with the court (Correct answer)
- Return all funds to the buyer immediately
Correct answer: Interplead the funds with the court
When escrow receives conflicting instructions it cannot resolve, interpleader allows the escrow holder to deposit funds with the court and let the parties litigate the dispute.
Question 4: Which endorsement to a lender's title policy protects against loss if zoning prevents the property from being used as a single-family residence?
- ALTA 3.1 – Zoning Endorsement (Correct answer)
- ALTA 9 – Restrictions, Encroachments, Minerals
- ALTA 6 – Variable Rate Mortgage
- ALTA 14 – Future Advance
Correct answer: ALTA 3.1 – Zoning Endorsement
The ALTA 3.1 Zoning Endorsement insures that the property is classified for single-family residential use under applicable zoning laws.
Question 5: What is the primary purpose of a preliminary title report (or title commitment)?
- To provide a final guarantee of clear title
- To disclose conditions under which the title company will issue a policy (Correct answer)
- To replace the need for a survey
- To set the escrow instructions
Correct answer: To disclose conditions under which the title company will issue a policy
A title commitment lists the conditions, exceptions, and requirements that must be met before the title company will insure the transaction.
Question 6: A closing agent fails to pay off a recorded mechanic's lien from sale proceeds. Who bears the loss if the lender's title policy is triggered?
- The buyer, as the new property owner
- The title insurance company, which then subrogate against the closing agent (Correct answer)
- The seller, who agreed to pay it
- The lender absorbs the loss
Correct answer: The title insurance company, which then subrogate against the closing agent
The title insurer pays the insured lender's claim and then pursues subrogation rights against the closing agent who failed to disburse properly.
Question 7: Under RESPA, how many business days before closing must the Closing Disclosure be received by the borrower?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
RESPA and TRID require the borrower to receive the Closing Disclosure at least 3 business days before consummation of the loan.
CHCP Title Insurance & Escrow Procedures 2
A buyer discovers after closing that a neighbor's fence encroaches 2 feet onto the purchased property.
Which title insurance policy would most likely cover this loss?