Is a new lender’s title insurance policy for a mortgage refinance just a way for the industry to make more money?
For some who are currently refinancing or who have refinanced a mortgage in the past, this is the exact question that many will ask!
After all lender’s title insurance was purchased when they originally bought their property so why is it necessary to buy it again, particularly when refinancing with the same bank?
The basic reason is that the lender needs to make sure that the collateral protecting the loan, in the event the borrower fails to pay, is as unencumbered as they believe it to be.
And as we all know, in the months or years since the original mortgage was originated, things can most definitely happen!
(Important Note: Because a new lender’s title insurance policy is necessary for the reasons you will read about below, do not forget to ask your provider if you qualify for the discounted reissue rate!)
From Homeclosing101.org, ‘Title Insurance Provides Needed Protection When Refinancing Mortgages‘…
‘Title insurance is essential to protect homeowners and lenders against any problems affecting the title to a home. Whether a consumer is purchasing a new or existing home, or refinancing, title insurance provides an underwriting service to mortgage lenders to ensure the borrower has clear ownership rights to the property, free and clear of any other claims to ownership.
When you refinance you are obtaining a new loan, even if you stay with your original lender. Lenders will usually require a new title search and loan policy to protect their investment in the property. Homeowners don’t need to purchase a new owner’s policy. The one they bought at closing is good for as long as they and their heirs have an interest in the property.
Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, a homeowner may have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or, a homeowner might have a judgment placed on their house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property they are financing is clear. Here are some other examples of items that can arise and why title insurance is important when refinancing a home:
- Liens against the property that serve as security for the payment of an obligation (e.g., mortgage liens, judgment liens for unpaid court judgments, tax liens, state and local liens for failure to pay real estate taxes or assessments, mechanic’s liens to secure payment for improvements, liens for recovery of child support payments or, as in New York City, for unpaid parking tickets);
- Easements that have been created by contract or arisen through use or adverse prescription (e.g., rights of way for utilities, rights acquired by neighbors because of a fence encroachment);
- Building or use restrictions contained in a recorded plats, agreements or deeds; and
- Rights or claims arising out of bankruptcy.
These rights may affect the use of the property or otherwise encumber the “ownership” rights of a property’s owner. They can be placed on a property at any time, including during the time between when an original purchase mortgage is placed on the property and that mortgage is refinanced.’
Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@HallmarkAbstractLLC.com
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