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Is Title Insurance Needed When Refinancing?

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Is Title Insurance Needed When Refinancing?

By Paul Gardner | Industry Topics | Comments are Closed | 24 May, 2022 | 0

Considering refinancing your home? Be sure you are prepared to pay for another lender’s title

insurance policy at closing. Why?

When you refinance a home, you are simply paying off one loan to take out another one, usually

at a better interest rate. So, you are still subject to most of the same lender requirements,

closing costs, and fees as you were on the original mortgage closing. One of those

requirements is title insurance.

The Two Types of Title Insurance

Title insurance protects buyers and lenders against loss or damage due to defects in title, such

as document forgery, encroachments, undisclosed heirs, and liens. The title is proof of proper,

legal ownership, and title insurance ensures a clear and outright ownership claim to the

property.

There are two types of title insurance policies:

● Owner’s title insurance protects the interests of the owner against issues with title that

may arise at any point while they own the property.

● Lender’s title insurance protects the lender’s interests for the amount of the loan. It’s

their protection against any losses. These policies last for the lifetime of the mortgage.

When refinancing your home, you will be required to purchase another lender’s title insurance

policy.

Why a New Lender’s Policy is Necessary for Refinancing

Even though you purchased title insurance when you bought your home, you will have to

purchase a new title insurance policy when you refinance. That’s because the original policy

doesn’t insure the new mortgage created when you refinance, so the lender is not protected.

But just what, you may ask, could possibly have happened since you first purchased the home

that would warrant needing a new lender’s title policy? If the title was cleared the first time, what

risk is there now?

Plenty, as it turns out. Maybe you took out a second loan or had legal judgements or liens

recorded against you. These could all result in losses to the lender if they are not protected by

title insurance. While you may know without a doubt this isn’t the case for you, it does happen.

The only way a lender can protect itself is to get a new policy each time a loan is taken out.

In the end, refinance loans are new loans that require a new lender’s title insurance policy. Don’t

forget to include this expense in your budget as you make plans to refinance your home.

Realtors, Title Industry, Title Insurance

Paul Gardner

Paul’s core practice centers on the examination of title and real estate transactions. He has extensive litigation experience, and has spent several years representing and advising lawyers, real estate agents, and insurance agents in connection with professional liability claims.

More posts by Paul Gardner

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