Skip to content

The Danger of a Refinance Without Title Insurance

Homes are the most significant investments and purchases for most people in their lifetime. As such, it's imperative to take all protective measures to safeguard your home from any damage or irregularities. If you've considered refinancing your real estate property to take advantage of lower rates or better terms, you should know about all the upfront costs.

And even if you opt to refinance your home through the same lender that originated the current loan, you could end up paying various closing costs. These include service fees, points, and title insurance fees. What exactly is title insurance, and what are the dangers of refinancing your property without title insurance? Read to learn more about title insurance and why it's a vital aspect of real estate refinancing.

What is title insurance?

The truth is, most people grapple with understanding title insurance. As a result, they either forego the process or entrust it to other parties. With a clear understanding of title insurance, you'll have an easier time dedicating enough time and resources to ensuring you get it right.

The trick to understating title insurance is dissociating the term from conventional insurance. In most cases, when you hear the term of insurance, you think of a car or health insurance. In these types of traditional insurances, you're essentially protecting yourself from certain future occurrences. Moreover, these conventional types of insurance require regular premium payments to keep the contract active.

Title insurance varies significantly from these conventional insurance types and policies. For starters, title insurance doesn't protect you from a negative future occurrence. On the contrary, this type of insurance protects you from undiscovered past circumstances that could otherwise jeopardize your ownership claim to the real estate property.

Why is title insurance vital during refinancing?

Most homeowners are surprised at the reequipment of title insurance during refinancing. However, it is an essential aspect as it can protect the property during various stages of its life. These may be during the construction stage, property rescale, or refinancing transaction.

Some of the common claims that title insurance can protect you from include liens, back taxes, and conflicting wills. Whether you want to change the homeownership to an individual after a divorce, or you're unable to make regular mortgage payments, thinking about title insurance – more so during refinancing, is vital.

What is the benefit of purchasing title insurance when refinancing?

You are required to purchase a lender's title insurance policy when refinancing your mortgage. This move is mainly to protect your lender for the updated loan. You may be entitled to a reissue rate or a lender's policy premium discount, although this depends on various factors, and different states operate differently. An expert in the field can help you determine if you're eligible for any of the abovementioned options.

A key point to note is an owner's title insurance purchased when buying the home will last as long as you own the property. Typically, this will also be in effect if the property is passed down to an heir. As such, you may not need to repurchase the owner's title insurance afresh.

What are the risks of not having owner's title insurance?

As mentioned above, having an owner's title insurance can help you in multiple ways. However, some homeowners forego the application process since it is not mandatory when buying a real estate property. What are some of the risks of lacking an owner's title insurance policy?

You could end up paying a passed-on debt.

Say you purchase a home that was newly refurbished. However, a few weeks after you finalize the deal and move in, the contractor claims he was not paid and demands payment from you. Without title insurance, you'll have to pay the contractor, even if you are not the one who commissioned the refurbishing.

On the other hand, if you already have title insurance in place, the contractor's burden to settle the claim is passed on to the insurance provider. Having title insurance can save you from liens resulting from unpaid taxes, mortgages, bills, and more.

You could lose part of your property due to encroachment

Numerous encroachment issues go through unnecessary and expensive legal procedures when there isn't title insurance. For instance, if you buy a property where the garage spills over to the neighbor's property, even by a few feet, title insurance can protect you. This applies even if the error was not discovered during the title search.

With title insurance in place, you can easily reach an agreement with the neighbor and forego the long and tedious legal process. The alternative, of course, could mean settling the conflict out of your pocket.

You could lose ownership of your property altogether

The greatest consequence of lacking title ownership is losing your property. This typically happens when a co-owner of the property sells it without your consent, knowledge, or authorization. With title insurance in place, the insurer will step in and solve the problem on your behalf.

Ultimately, title insurance is an important aspect every homeowner needs to consider. When you're refinancing your property, having title insurance will save you a lot of trouble. And in the case of something going wrong, you can trust the insurance will step in and help you out.

Find The Right Mortgage

For more than 20 years, Phil have been helping customers achieve their home purchase and refinance goals by providing them with invaluable resources and support.

Schedule a FREE Consultation
Phil Ganz

Subscribe to Get Your First Time Homebuyer Checklist

Sign up for the weekly newsletter to stay up to date on the latest real estate market trends, loan news, and so much more!