For anyone refinancing their house for the first time, there is always one question.
“But I already have title insurance. Why do I need it again?”
When you refinance your home, you are paying off one mortgage and acquiring another. Your original lender had you pay for a lender’s title policy when you first bought the property, and now you are opening another mortgage, so this lender also wants that protection from defects in title. In the intervening years, a lot could have happened to cloud your title.
- You could have tax liens against the property.
- You might have had home improvements or repairs that resulted in trademan’s liens against the property.
- You might have taken out lines of credit using your home equity that interfere in the priority of the new refinanced mortgage.
- There could be new defects in the chain of title resulting from improper foreclosure as cases make their way thought the courts.
- In the case of missing documents in the chain of title, a claimant or heir previously unknown could have a claim on the house.
- Fraudulent conveyance could come to light, where a previous owner did not disclose that someone else with an interest in the property.
- An error in survey results in the redrawing of property lines.
- There is an easement on your property.
- Unpaid liens of former owners may have been uncovered.
A lender’s title policy guarantees that should any defects be uncovered, that they are not damaged by any claims that might result. When the lender ceases to have an interest in your home, the lender’s title policy terminates whether you have paid off the mortgage with your own funds or via refinance. However, the policy that covers you – the owner’s title policy – remains in force until you sell or otherwise convey the property. There’s no need to buy another policy to protect your interest, but there will be some expenses you’ll need to cover.
- Property taxes. Outstanding taxes must be paid, and taxes not yet due may be placed in an escrow account.
- Escrow fees. Fees charged by the title company including notary’s fees and recording fees.
- Lender’s fees. Origination, processing, underwriting, administrative fees – kind of the equivalent of Spirit Air’s low ticket price with charges for everything else.
- Appraisal fees. Fees charged by the bank’s appraiser for appraising the value of the property versus the amount of the loan.
- Credit check fees. Fees for checking credit reports.
- Insurance premiums. Your homeowners and other policies such as windstorm and flood should be current.
There’s, of course, a lot of things that are going to remind you of closing, including the need to scrupulously review the mortgage documents and make sure that your final documents match your estimate. Read closely to make sure that you know what you’re getting into, and don’t sign anything that you’re unsure about. Be prepared, just the way you were at your first closing, and everything should be smooth sailing!