Mortgage Loan Originator (MLO) Licensing Practice Test

Is a mortgagor's title insurance policy based on the purchase price?

1. True

2. False

3. Conditionally true

4. Not applicable

The correct answer is: True

A mortgagor's title insurance policy is indeed based on the purchase price of the property. This type of insurance protects the buyer (mortgagor) from any potential title defects or issues that could arise after the purchase, such as undiscovered liens or ownership disputes. The coverage amount is typically set at the purchase price because it reflects the value of the investment being protected. This correlation between the policy value and purchase price serves to provide adequate financial protection to the mortgagor. Should any title issues arise, the title insurance company will cover the costs associated with resolving such issues, up to the amount specified in the policy. Understanding this relationship is critical in evaluating the roles and responsibilities of parties involved in real estate transactions, particularly as it relates to risk management and investment protection. Other options may suggest differing levels of applicability regarding the relationship between title insurance and the purchase price, but the truth is that the insurance is fundamentally tied to that price to ensure the mortgagor's interests are fully encompassed within the protection offered.