If lien search and title review are skipped prior to funding, what risk could materialize?

• A. Undisclosed liens or defects that jeopardize collateral enforcement.
• B. No risk; collateral is always enforceable.
• C. It will automatically cause default.
• D. It only affects interest rate.

Answer: (A)

The key idea is protecting the lender’s ability to recover from the collateral if the borrower defaults. Lien search and title review are due diligence steps that confirm the property’s title is clear of encumbrances and that no prior claims could take precedence over the lender’s lien. If these checks are skipped, you could discover undisclosed liens (like unpaid taxes, mechanic’s or judgment liens) or title defects after funding. Those issues can undermine the lender’s ability to enforce the loan—perhaps the collateral cannot be fully sold, or other creditors get paid first, leading to a loss or costly title work to cure the problems.

That’s why the best choice points to undisclosed liens or defects that jeopardize collateral enforcement. The other options aren’t correct: there isn’t no risk, and skipping due diligence doesn’t automatically trigger default or simply affect the interest rate—the bigger consequence is impaired enforcement and recoverability.