General Mortgage Knowledge · 20% of the SAFE examhard
Correct answer: The easement is an encumbrance on the title, but owner's title insurance will not cover losses caused by easements that were recorded and disclosed prior to closing
A recorded easement is a form of encumbrance on the property's title — it is a legal right of another party (the utility company) to use a portion of the property. However, title insurance policies generally exclude from coverage any losses arising from easements, liens, and encumbrances that were recorded in the public record and disclosed before closing. Owner's title insurance protects against title defects that were unknown or undiscoverable at the time of closing. Since this easement was found in the title search and disclosed, losses stemming from it would typically not be covered by the owner's policy. The property can still have marketable title (easements for utilities are common), and conventional financing is still available. The lender may still require and receive a lender's title policy. The easement does not need to be removed for the title company to issue a policy.
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