What is necessary for a Loan Policy to be considered valid?

For a Loan Policy to be considered valid, it is essential that the lender holds clear title. A Loan Policy provides protection to the lender against losses related to a lien or other claims that could affect their secured interest in the property. If the lender does not have clear title, they are at risk of significant financial loss should a title defect arise. Clear title means that the property is free from any legal encumbrances or claims that could threaten the lender's position.

The necessity for clear title emphasizes the importance of the lender's security interest in the underlying property being protected. In the context of title insurance, if issues like ownership disputes, unpaid taxes, or undisclosed liens exist, they can jeopardize the loan's security. Therefore, ensuring that the lender has clear title is foundational for the validity and effectiveness of the Loan Policy.

The other choices, while related to different aspects of title policies or general lending practices, do not fundamentally address the criteria that establish the validity of a Loan Policy itself.