CHCP Title Insurance & Escrow Procedures 3 — Questions and Answers
Question 1: What does 'chain of title' refer to in real estate transactions?
- The sequence of recorded ownership transfers for a property (Correct answer)
- The list of all mortgages currently on a property
- The order in which closing documents are signed
- The hierarchy of lien priority on a property
Correct answer: The sequence of recorded ownership transfers for a property
Chain of title is the chronological sequence of historical transfers of title to a parcel of land from the original grant to the present owner.
Question 2: An escrow holdback is most commonly used when:
- The buyer cannot obtain financing
- Work agreed to by the seller is not completed by closing (Correct answer)
- The title search reveals an old judgment
- The property appraises below purchase price
Correct answer: Work agreed to by the seller is not completed by closing
An escrow holdback retains a portion of seller proceeds to ensure incomplete repairs or improvements are finished after closing.
Question 3: Which of the following is NOT typically a Schedule B-I exception in a title commitment?
- Taxes for the current year not yet due
- Rights of parties in possession
- The purchase price agreed between buyer and seller (Correct answer)
- Easements not shown by public records
Correct answer: The purchase price agreed between buyer and seller
The purchase price is a contractual matter, not a title exception; Schedule B-I lists standard exceptions to coverage such as taxes, easements, and possessory rights.
Question 4: A title search reveals a 15-year-old federal tax lien against a prior owner who conveyed the property 12 years ago. What is the typical resolution?
- Ignore it — the statute of limitations has run
- Require a hold-harmless letter from the current seller
- Obtain a subordination agreement from the IRS
- Require a release or discharge from the IRS before insuring (Correct answer)
Correct answer: Require a release or discharge from the IRS before insuring
Federal tax liens follow the property and must be formally released or discharged by the IRS before a title company will insure clear title.
Question 5: In escrow, the term 'proration' at closing most commonly applies to:
- Splitting the title insurance premium between buyer and seller
- Dividing ongoing expenses like property taxes and HOA dues based on closing date (Correct answer)
- Allocating the real estate commission between agents
- Distributing earnest money in a failed transaction
Correct answer: Dividing ongoing expenses like property taxes and HOA dues based on closing date
Prorations at closing adjust property taxes, HOA fees, and similar recurring expenses so each party pays only for their period of ownership.
Question 6: What is a 'gap' in title insurance terminology?
- The period between the title search date and the policy effective date (Correct answer)
- Missing pages in a recorded deed
- The difference between market value and insured amount
- An unrecorded easement on the property
Correct answer: The period between the title search date and the policy effective date
The gap is the time window between when the title search ends and when the deed and mortgage are recorded, during which unknown interests could be filed.
Question 7: Which party typically selects the title company in a purchase transaction in most US states?
- Always the lender
- Always the buyer
- Typically the party paying for the owner's policy, which varies by local custom (Correct answer)
- Always the seller
Correct answer: Typically the party paying for the owner's policy, which varies by local custom
Custom varies by region — in many areas the seller chooses (and pays for) the owner's policy, while in others the buyer chooses; RESPA prohibits the seller from requiring a specific title company as a condition of sale.
CHCP Title Insurance & Escrow Procedures 3
What does 'chain of title' refer to in real estate transactions?