ALTA Practice Exam – Complete Prep Resource

When a title defect is discovered after the closing of a real estate transaction, the title insurance typically steps in to address the issue. Title insurance is designed to protect property owners and lenders from financial loss due to defects in the title that were not uncovered during the title search prior to closing. This can include issues like undisclosed liens, forgery, or issues related to heirs.

In most cases, if the title insurance policy is in place, the insurer is responsible for covering costs associated with resolving the defect, whether that involves legal fees to clear the title or compensating the insured if the defect cannot be resolved. This coverage is a critical aspect of title insurance, giving reassurance to the buyer that they are protected against unforeseen title issues that might arise after the purchase.

The other choices do not capture the primary purpose of title insurance. While a buyer might still reach out to the seller regarding a defect, there’s no obligation for the seller to fix issues that arise post-closing, particularly if they were not disclosed. The risk of losing ownership due to a title defect is mitigated by the existence of title insurance, which is intended specifically to address such scenarios. Hence, the role of title insurance in covering defects makes it the most appropriate answer in this