Chapter 21 — Self-Check Quiz

Title and Insurance

Twenty-six questions. Multiple choice and short answer, written in the style of the SAFE MLO test where the material is exam-relevant. Work them without the chapter open, then check the key.

1. Title is best defined as:

(a) the deed recorded in the county land records (b) the bundle of legal rights to own, use, possess, and dispose of real property (c) the title company's written opinion of ownership (d) the abstract of all recorded documents affecting a parcel

2. Which document conveys ownership of real property from one party to another?

(a) the note (b) the security instrument (c) the deed (d) the title commitment

3. A title commitment is:

(a) a policy of title insurance (b) a guarantee that title is free of defects (c) the title company's offer to issue a policy, subject to stated requirements and exceptions (d) a legal opinion of title binding in all fifty states

4. Schedule A of a title commitment states all of the following EXCEPT:

(a) the amount of insurance for each policy to be issued (b) the estate or interest to be insured (c) the matters the policy will not cover (d) the party in whom title is currently vested

5. An item appearing on Schedule B, Part I is:

(a) a matter excluded from coverage (b) a requirement that must be satisfied before a policy will issue (c) an endorsement the lender has requested (d) a defect the title company has agreed to insure over

6. An item appearing on Schedule B, Part II is:

(a) a requirement to be satisfied before closing (b) a matter the policy will not insure against (c) a fee to be collected at settlement (d) a condition of the purchase contract

7. Short answer. A title officer says, "We can insure it." Why is that not the same statement as "title is clean"?

8. The general rule of lien priority in the United States is:

(a) largest claim first (b) secured claims before unsecured claims, then by size (c) first in time, first in right, by date and time of recording (d) determined by the closing agent at settlement

9. Which of the following commonly takes priority over a previously recorded first mortgage?

(a) a judgment lien recorded later (b) a second mortgage recorded later (c) delinquent real property taxes (d) an unrecorded lease

10. In many states, a perfected mechanic's lien relates back in priority to:

(a) the date the lien was recorded (b) the date the contractor first demanded payment (c) the date work commenced or materials were first furnished (d) the date of the deed conveying the property

11. A mechanic's lien recorded against a property by a prior owner's contractor and never released:

(a) is extinguished when the property is sold (b) attaches only to the person who ordered the work (c) remains attached to the property and must be released before a first lien can be assured (d) becomes the responsibility of the title company automatically

12. Short answer. Your borrower asks why a lien from an owner two conveyances ago is their problem. Answer in two sentences.

13. A lender's title policy:

(a) is written for the purchase price and does not decline (b) is written for the loan amount and declines as the principal balance declines (c) protects the borrower's equity (d) covers defects arising after the policy date

14. An owner's title policy:

(a) terminates when the mortgage is paid off (b) is required by the lender on every purchase (c) is written for the purchase price and generally lasts as long as the insured or their heirs hold an interest (d) covers zoning violations and building code enforcement

15. Title insurance differs from homeowners insurance principally in that title insurance:

(a) is paid monthly (b) covers defects existing as of the policy date rather than future events (c) is required by federal law (d) is written by the lender rather than a carrier

16. Which is generally EXCLUDED from a standard title policy?

(a) a forged deed in the chain of title (b) an undisclosed heir (c) governmental police power, including zoning and building codes (d) a lien recorded but missed by the searcher

17. Short answer. Name three things a title search cannot discover, and say why.

18. An easement is best described as:

(a) a lien securing a debt (b) a right of a party other than the owner to use a defined portion of the property for a defined purpose (c) a restriction imposed by the lender (d) a defect that must always be cured before closing

19. An encroachment is:

(a) an unrecorded mortgage (b) a physical intrusion of an improvement across a boundary line or into an easement (c) a violation of a restrictive covenant (d) a title company's requirement

20. A survey supports the deletion of which standard exception?

(a) taxes not yet due and payable (b) rights of parties in possession (c) encroachments, overlaps, boundary disputes, and matters an accurate survey would disclose (d) unfiled claims for labor and material

21. A lender generally requires dwelling coverage at least equal to:

(a) the purchase price (b) the appraised value (c) the lesser of the unpaid principal balance or 100% of insurable replacement cost, on a replacement cost policy (d) the loan amount plus closing costs

22. Short answer. A borrower's binder shows Coverage A of \$311,500 on a \$365,750 loan and a \$385,000 purchase price. Is the coverage sufficient? State your reasoning and the one condition your answer depends on.

23. The mortgagee clause on a homeowners policy must contain:

(a) the loan officer's NMLS number (b) the lender's exact legal name, address, and the loan number (c) the appraised value of the property (d) the borrower's Social Security number

24. Short answer. A quote and a binder are not the same thing. State the difference and name the two-week window in which the difference usually becomes visible.

25. Flood insurance is required by federal law on a regulated lender's loan when:

(a) the borrower requests it (b) the appraiser identifies a nearby stream (c) improved real property securing the loan lies within a Special Flood Hazard Area in a participating community (d) the property is within one mile of the coast

26. When a condominium's master policy is written on a "bare walls" basis, the unit owner:

(a) needs no separate policy (b) must carry an HO-6 walls-in policy with meaningful limits (c) is covered for interior finishes by the association (d) may substitute a renter's policy

Answer key — work the questions first **1. (b)** Title is a bundle of rights, not a document. A deed conveys it; an abstract or commitment is evidence about it. (§21.1) **2. (c)** The deed. The security instrument creates a lien; the note evidences the debt; the commitment is an offer to insure. (§21.1, Ch. 1) **3. (c)** An offer to issue a policy on stated terms. It is not a policy, not a guarantee, and in most states not a legal opinion of title. (§21.3) **4. (c)** Exceptions are Schedule B, Part II. Schedule A gives the search date, the policies and amounts, the estate, the vesting, and the legal description. (§21.3) **5. (b)** A requirement. B-I is a to-do list; the policy does not issue until it is empty. (§21.3) **6. (b)** An exception — a matter the policy will not insure against. Every item on B-II is a risk the buyer and lender retain. (§21.3) **7.** A company can insure title that is not marketable simply by *excepting* the problem on Schedule B-II. "We can insure it" may mean "we will write a policy that does not cover the thing you are worried about." The follow-up question is always: *insure it with the exception, or insure over it?* (§21.1, §21.7) **8. (c)** First in time, first in right, by recording date and time. (§21.4) **9. (c)** Delinquent real property taxes, which in most states carry statutory priority regardless of recording order. (§21.4) **10. (c)** The date work commenced or materials were first furnished — which is why work done before your mortgage recorded can produce a senior lien afterward, and why the standard exception for unfiled labor claims exists. (§21.4) **11. (c)** It stays attached to the land. A deed conveys title subject to recorded claims; it does not clear them. (§21.2, §21.6) **12.** "The lien is attached to the house, not to the person who ordered the work — that is the whole point of it, because the contractor's leverage is the building. Three sales have happened since and none of them removed it, so until a release is recorded, our loan would sit behind a stranger's claim on your collateral, and the lender cannot do that." (§21.2, §21.4) **13. (b)** Loan amount, declining with the balance, protecting the lender only. (§21.5) **14. (c)** Purchase price, non-declining, lasting as long as the insured or their heirs hold an interest. It is optional; the lender does not require it. (§21.5) **15. (b)** Title insurance is retrospective — it covers defects that already exist as of the policy date. That is why the premium is paid once and there is nothing to renew. (§21.5) **16. (c)** Governmental police power. Forgery, undisclosed heirs, and missed recorded liens are among the core covered risks. (§21.5) **17.** Any three of: forgery and impersonation; undisclosed or missing heirs; incapacity of a grantor; forged or unauthorized releases; indexing errors; unrecorded interests; mechanic's liens not yet filed; matters arising in the gap between the search date and recording. All of them share one cause: **a search finds what was recorded and correctly indexed, and nothing else.** (§21.2) **18. (b)** A right of use held by someone other than the owner. It is an encumbrance and it is not a lien — nobody is owed money. (§21.7) **19. (b)** A physical intrusion across a boundary or into an easement. (§21.7) **20. (c)** The survey exception. (§21.3, §21.7) **21. (c)** The lesser of the unpaid principal balance or 100% of insurable replacement cost, and the replacement-cost option depends on the policy being written on a replacement cost basis. Verify your investor's and your lender's specific wording. (§21.8) **22.** Sufficient, provided the policy is a **replacement cost** policy. The rule is the lesser of the loan amount or 100% of insurable replacement cost, and \$311,500 is the replacement cost of the improvements. The remaining \$73,500 of the \$385,000 price is land, and land does not burn. Requiring \$365,750 of dwelling coverage would have the borrower paying premium on \$54,250 that can never be collected. (§21.8) **23. (b)** Exact legal name, address, and loan number. The reason is servicing: after transfer, the servicer matches the carrier's renewal billing to a name and a loan number, and a mismatch produces a lapse and a force-placed policy long after closing. (§21.8) **24.** A quote is a price and binds nothing; a **binder** is temporary written evidence that coverage is in force, issued by an agent with authority to bind. The difference becomes visible in the last two weeks before closing, when a carrier declines the risk after inspection or the bound premium comes back above the quote — moving the payment, the ratios, and the cash to close. (§21.8) **25. (c)** Improved real property in an SFHA in a participating community. The determination itself is required on every federally related mortgage regardless of the outcome. (§21.9) **26. (b)** A bare-walls master policy covers the structure and common elements only; everything from the studs inward is the unit owner's, so an HO-6 with real limits is required. Note also that the HO-6 premium **and** the HOA dues both go into the housing ratio. (§21.10)