PSI New Jersey Real Estate State Practice Exam

What advantage does title insurance provide to buyers?

1. It guarantees ownership regardless of payment

2. It reduces the risk of loss due to title defects

3. It ensures the property will appreciate in value

4. It provides tax exemptions for the buyer

The correct answer is: It reduces the risk of loss due to title defects

Title insurance primarily serves to reduce the risk of loss due to title defects. When a buyer purchases title insurance, they obtain financial protection against potential issues related to the property's title that may arise after the purchase. These issues can include unknown liens, errors in public records, fraud, or other claims that might challenge the buyer's right to ownership. If a title defect is discovered after the buyer has purchased the property, title insurance covers the legal costs and any losses incurred, ensuring the buyer's investment is safeguarded. This measure of security is crucial because problems with a title can lead to significant financial repercussions for the buyer. The other answer choices do not accurately reflect the purpose of title insurance. For example, title insurance does not guarantee ownership regardless of payment; it protects against defects in the title, not payment issues. Similarly, while the appreciation of property value is an important consideration in real estate, it is not something title insurance ensures. Lastly, title insurance does not provide tax exemptions; its focus is solely on title protection rather than tax benefits.