National Real Estate Practice Exam

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What is the purpose of title insurance in a real estate transaction?

To reduce the cost of closing
To protect against defects in the title
To expedite the recording process
To guarantee property values

The correct answer is: To protect against defects in the title

The purpose of title insurance in a real estate transaction is to protect against defects in the title. This insurance provides coverage for issues that may arise relating to the property's ownership, such as liens, encumbrances, and other unforeseen claims that could affect the buyer's legal rights to the property. By securing title insurance, buyers gain peace of mind knowing that they are protected from potential legal troubles stemming from issues with the title, even those that may have existed prior to their purchase. While reducing closing costs might be a goal of some parties involved, title insurance specifically focuses on ensuring a clear title rather than cost reduction. Similarly, while the recording process is a key part of ensuring that property transfers are legally recognized, title insurance does not expedite that process; it rather operates after the title is established. Lastly, title insurance does not guarantee property values; it is aimed at safeguarding against risks associated with the title itself. Overall, the protective aspect of title insurance is crucial for anyone involved in the purchase of real estate to ensure their investment is secure.