CHCP Title Insurance & Escrow Procedures 4 — Questions and Answers
Question 1: What is the purpose of a 'marked-up' title commitment at closing?
- To show the final premium charged for the policy
- To document the agreed purchase price corrections
- To confirm which exceptions have been satisfied and will be removed from the final policy (Correct answer)
- To notify the lender of outstanding liens
Correct answer: To confirm which exceptions have been satisfied and will be removed from the final policy
A marked-up commitment is the working document showing which Schedule B requirements were met and which exceptions were cleared before the final policy is issued.
Question 2: An owner's title policy insures against losses arising from which of the following after closing?
- Physical damage to the property from natural disasters
- A forged deed in the chain of title discovered post-closing (Correct answer)
- Environmental contamination on the property
- Zoning changes enacted by the municipality after closing
Correct answer: A forged deed in the chain of title discovered post-closing
Owner's title insurance covers defects existing as of the policy date, including forgery in the chain of title, even if discovered years later.
Question 3: A settlement agent receives a cashier's check for $485,000 from a buyer. Under most state escrow laws and best practices, where must these funds be held?
- In the agent's operating account until disbursement
- In a federally insured trust or escrow account separate from operating funds (Correct answer)
- In the lender's account until closing
- In the title company's investment account to earn interest
Correct answer: In a federally insured trust or escrow account separate from operating funds
Escrow funds must be held in a separate, trust account to protect client funds from commingling with operating funds and to ensure availability for disbursement.
Question 4: What distinguishes a lender's (mortgagee's) title policy from an owner's policy?
- The lender's policy protects the buyer's equity; the owner's protects the loan amount
- The lender's policy amount decreases as the loan is paid down; the owner's policy amount stays the same (Correct answer)
- The lender's policy is optional; the owner's is required by law
- The owner's policy terminates at closing; the lender's policy lasts 10 years
Correct answer: The lender's policy amount decreases as the loan is paid down; the owner's policy amount stays the same
A lender's policy coverage amount decreases with the outstanding loan balance, while an owner's policy protects the full purchase price value of the property.
Question 5: When a property has a homeowners association (HOA), what escrow-related step is critical before closing?
- Obtaining an HOA estoppel letter confirming current dues and any assessments owed (Correct answer)
- Having the HOA president attend the closing
- Requiring the seller to resign from the HOA board
- Confirming the HOA has title insurance on common areas
Correct answer: Obtaining an HOA estoppel letter confirming current dues and any assessments owed
An HOA estoppel letter provides a certified, binding statement of all amounts owed to the HOA, preventing the buyer from inheriting unpaid dues or special assessments.
Question 6: Which ALTA policy form is specifically designed to protect residential homeowners with enhanced coverage beyond the standard policy?
- ALTA Loan Policy 2006
- ALTA Homeowner's Policy of Title Insurance (2021) (Correct answer)
- ALTA Short Form Residential Loan Policy
- ALTA Extended Coverage Policy
Correct answer: ALTA Homeowner's Policy of Title Insurance (2021)
The ALTA Homeowner's Policy provides expanded coverage including post-policy risks like building permit violations, zoning law violations, and neighbor encroachments.
Question 7: A closing statement shows a $1,200 real estate tax proration credited to the buyer. This means:
- The buyer owes the seller $1,200 for taxes already paid
- The seller owes the buyer $1,200 for taxes accrued but not yet paid (Correct answer)
- The title company will pay $1,200 in taxes at closing
- The lender will escrow an additional $1,200 from the buyer
Correct answer: The seller owes the buyer $1,200 for taxes accrued but not yet paid
A tax proration credit to the buyer means the seller accrued that portion of the annual tax bill during their ownership period and is crediting the buyer to pay it when due.
CHCP Title Insurance & Escrow Procedures 4
What is the purpose of a 'marked-up' title commitment at closing?