CHCP Title Insurance & Escrow Procedures 5 — Questions and Answers
Question 1: A title search uncovers an old mortgage that was paid off but never formally released in the public records. What should the closing agent require?
- A sworn affidavit from the current seller
- A recorded satisfaction, release, or discharge of mortgage from the lender (Correct answer)
- A letter from the original borrower confirming payoff
- A gap indemnity agreement from the buyer
Correct answer: A recorded satisfaction, release, or discharge of mortgage from the lender
An unreleased mortgage remains a cloud on title; a recorded satisfaction or discharge is needed to formally extinguish the lien in the public record.
Question 2: What is 'constructive notice' in the context of title insurance?
- Notice given to a party via certified mail before closing
- Legal notice imputed to all parties because an instrument is properly recorded in public records (Correct answer)
- Notice given by posting on the property itself
- Verbal notice exchanged between buyer and seller
Correct answer: Legal notice imputed to all parties because an instrument is properly recorded in public records
Constructive notice means the law presumes everyone knows about interests properly recorded in the public land records, even if they haven't personally reviewed them.
Question 3: Which of the following would cause a title company to issue a 'clean' (or 'straight') title commitment without exception?
- All Schedule B-I requirements have been met and all clouds on title resolved (Correct answer)
- The buyer has paid the full purchase price
- The lender has approved the loan
- The seller has signed the deed
Correct answer: All Schedule B-I requirements have been met and all clouds on title resolved
A clean commitment is issued only when all requirements in Schedule B-I are satisfied and no unresolvable exceptions remain in Schedule B-II.
Question 4: During escrow, the buyer attempts to direct the escrow agent to release earnest money to them before closing conditions are met. The escrow agent should:
- Release funds since the buyer is the principal
- Refuse and require written mutual consent from all parties or a court order (Correct answer)
- Release half the funds as a compromise
- Contact the lender for authorization
Correct answer: Refuse and require written mutual consent from all parties or a court order
Escrow agents are neutral stakeholders who may only disburse funds per the escrow instructions, mutual written consent of all parties, or court order.
Question 5: What is the significance of the 'effective date' on a title insurance policy?
- The date the premium was paid
- The date through which the title search was conducted and from which coverage begins (Correct answer)
- The date the closing documents were signed
- The date the lender funded the loan
Correct answer: The date through which the title search was conducted and from which coverage begins
The policy effective date marks the end of the title search period; the insurer accepts liability for defects existing as of that date that were not disclosed in Schedule B.
Question 6: A property is being sold and there is an existing home equity line of credit (HELOC) that must be paid off. What unique challenge does a HELOC present at closing compared to a fixed-rate mortgage?
- HELOCs require a separate title policy endorsement to close
- The payoff amount can change daily since the balance is variable, and the lender must freeze the line before issuing a payoff (Correct answer)
- HELOCs automatically transfer to the buyer at closing
- HELOCs are not recorded in public records and don't affect title
Correct answer: The payoff amount can change daily since the balance is variable, and the lender must freeze the line before issuing a payoff
Because a HELOC is a revolving line with a variable balance, the lender must freeze draws and provide a current payoff figure that is only valid for a short window.
Question 7: When a title company issues a 'simultaneous issue' rate, it applies to which situation?
- Two properties being purchased at the same time by the same buyer
- Both an owner's policy and a lender's policy being issued for the same transaction at the same time (Correct answer)
- A title policy issued within 30 days of a prior policy on the same property
- A title policy issued simultaneously in two different counties
Correct answer: Both an owner's policy and a lender's policy being issued for the same transaction at the same time
The simultaneous issue rate is a discounted premium for the lender's policy when it is issued at the same closing as the owner's policy, since much of the title work is shared.
CHCP Title Insurance & Escrow Procedures 5
A title search uncovers an old mortgage that was paid off but never formally released in the public records.
What should the closing agent require?