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What does property title insurance cover?

  1. Only insures the lender against default

  2. Only insures the buyer against property defects

  3. Insures the lender, insures the buyer, covers unknown risks to the title such as unrecorded liens

  4. Covers only the costs of property repairs

The correct answer is: Insures the lender, insures the buyer, covers unknown risks to the title such as unrecorded liens

Property title insurance serves an essential role in real estate transactions by protecting both lenders and buyers from various potential issues related to property ownership. The correct answer highlights that title insurance insures not just the lender, but also the buyer, which reflects the comprehensive nature of this type of insurance coverage. Title insurance specifically covers risks associated with the ownership of real property, including unknown issues that may not be evident at the time of purchase. This could involve unrecorded liens, fraud, or other encumbrances that could affect the property's title and, consequently, the owner's rights. This protection is crucial because, unlike other forms of insurance that cover future incidents, title insurance provides coverage for issues that may have occurred in the past but are discovered after the purchase. Other options focus on more limited scopes of coverage. Some suggest insurance applies only to the lender or just to the buyer, which overlooks the broad protections title insurance offers to both parties involved in the transaction. Others imply that it only addresses specific costs related to repairs, which is not the function of title insurance. Overall, the answer correctly encapsulates the full protective role of title insurance in real estate transactions.