Q. Why do
I need to purchase a new title insurance policy on a refinanced
loan?
A. To
the lender, a refinance loan is no different than any other
home loan. So, your lender will want to insure that their
new loan is protected by title insurance, just as the original
lender required. Therefore, when you refinance you are buying
a title policy to protect your lender.
Q. Why does a Lender need
title insurance?
A.
Most lenders generate loans and then immediately sell those
to secondary market investors, such as FannieMae, in order
to protect its security interests in the loan, requires
title insurance coverage. Even those lenders who keep original
loans in their portfolio are wise to get a lenders policy
to protect their investment against title related defects.
Q. When I purchased my
home, didn't I also buy a lender's policy?
A.
Perhaps. Who pays for the lender's policy on a purchase
loan varies regionally and by the terms of individual contracts.
However, even if you did buy a lender's policy when you
purchased your home, the lender's policy remains in force
only during the life of the loan that was insured. If you
refinance, the old loan is paid off (the "life"
of the loan expires) and a new loan is issued for which
the lender will require a new title insurance policy.
Q. What about my original
title insurance policy?
A.
When you bought your home, you purchased a homeowners title
policy. The homeowners' policy stays in force as long as
you or your heirs own the home. When you refinance, your
lender will often require that you purchase a new lender's
policy to protect their new security interest in the property.
Thus, you are buying a policy to protect your lender, not
a new homeowner's policy.
Q. What could possibly
have happened since I purchased my home which warrants a
new lender's policy?
A.
Since the time that the original loan was made, you may
have taken out a second trust deed on the house or had mechanic's
liens, child support liens or legal judgments recorded against
you - events that could result in serious financial losses
to an unprotected lender. Even if it has been 6 months or
less since you purchased or refinanced your home, a myriad
of title defects could have occurred. While you may not
have any title defects, many homeowners do. The only way
for a lender to adequately protect itself is to get a new
lender's policy each time you purchase or refinance your
home.
Q. Are there any discounts
available for title insurance on a refinance transaction?
A. Yes.
Title companies offer a refinance transaction discount or
a short-term rate. Discounts may also be available if you
use the same lender for you refinance loan and your original
loan. Be sure to ask your title company how they can save
you money.
