Question 27

Title insurance reduces the risk of loss due to title defects.

Title insurance provides protection against financial loss from defects in the title to a property, which makes loans more accessible for buyers. By ensuring that the title is clear and free of issues, lenders feel more secure in extending credit.

A) lender policies can add exemptions to the owners policy

This option is incorrect because while lender policies may have specific exemptions, this does not directly contribute to making loans more accessible for buyers. The presence of exemptions can sometimes complicate the title insurance process rather than simplify it.

B) it reduces the risk of loss due to buyer default

This option is also incorrect. Title insurance primarily addresses issues related to the title of the property rather than the financial stability or creditworthiness of the buyer. Thus, it does not directly reduce the risk associated with buyer default.

C) it reduces the risk of loss due to title defects

This option is correct as title insurance indeed protects buyers and lenders from financial loss arising from defects in the title. By ensuring that the title is free from liens, encumbrances, or other defects, it increases lenders' confidence and allows for more accessible loan options for buyers.

D) lender policies are paid for by buyers.

This option is misleading. While buyers may pay for lender policies, this fact does not inherently make loans more accessible. The accessibility of loans is more directly related to the protection that title insurance provides against title defects, rather than the payment arrangement.

Conclusion

The correct answer, C, highlights the crucial role of title insurance in mitigating risks related to title defects, which reassures lenders and facilitates more accessible loans for buyers. Other options either misrepresent the function of title insurance or do not directly relate to loan accessibility, making them ineffective in addressing the core question.