Last week, we discussed the importance of the owner’s policy when purchasing a home and gave the example of the $150k home equity lien found on the property 2 years later when the couple refinanced. The lien was now the current home owner’s responsibility even though it was the seller’s Line of Credit. Key point to last week was that liens “run with the land” so once you transfer title, and a lien is attached to the property, that lien is now the current owner’s problem. Our job is to make sure you obtain title free and clear of any liens. Lastly, when you purchase, we discussed you get two policies; owner’s and lender’s policies. We discussed the owner’s, now time for the lender’s.
The second policy is a Lender’s Policy. Lenders require their borrowers to obtain title insurance so the lender knows that their mortgage is recorded in first lien position. (cough cough, line of credit example) So someone just purchased two years ago and they are refinancing, and they wonder why they need to pay for title insurance again. They are paying off the existing mortgage in full, in which there is a lender’s title policy attached to that mortgage; so the policy stays with that paid off mortgage. When refinancing, the lender will require a new policy for the new mortgage. A lot can happen in two years. Within those two years, there could have been a borrower with a $100k hospital bill that could not get paid. The hospital would then record a lien on the property as collateral. We see child support liens, defects in title from prior owners, etc. The bank needs to know that the money they are lending is secured, and they can do that by making sure their mortgage is recorded in first lien position. So yes, people who are refinancing are paying again, but they are not paying nearly as much, and remember, an owner’s policy stays with the owner as long as they own the property so only a new lender’s policy is required. If the new loan amount is less than the existing loan amount then they will get the full refinance rate which is a much lower rate than the basic rate of when they purchased.
Title insurance is so important for you, the home buyer, and once again, please remember, this is YOUR CHOICE on which title company to use. We will make sure your title is free and clear so when you purchase or refinance your property, you know your title is not only secure, but also the closing process is made simple. Learn more at Simplicity Title.
- Luke Tyler, President and CEO