Refinancing costs hiked by new title insurance

Homeowners who hope to lower monthly mortgage payments byrefinancing must be prepared to pay a sizable amount - often severalthousand dollars - to switch mortgages.

From the lender's standpoint, a refinanced loan is like anyother mortgage loan, said William Halvorsen, vice president ofChicago Title Insurance Co.

This means the homeowner will have to pay the usual service feesor points and other expenses typically associated with closing asale, including a new charge for title insurance, he said.

"Because no change in ownership is involved, some owners whopurchased a title insurance policy when they bought their homeswonder why they should be saddled with the expense again.

"The reason is because two sets of interest - the owner's and thelender's - are involved in any home financing transaction. Each iscovered by title insurance in different ways," Halvorsen said.

Title insurance insures the rights to real estate. Beforeissuing a policy, the title insurer searches public records todetermine if there are any liens or claims against the property thatcould affect the validity of the title.

Unlike most forms of insurance, the primary purpose of titleinsurance is to eliminate risks and prevent losses caused by defectsin title arising out of events that have taken place in the past.Other forms of insurance protect against losses that may arise in thefuture, such as accidents or death, Halvorsen said.

From the owner's perspective, a title policy protects againstany loss that could result if it is determined that the insured didnot own the property or that the property was subject to the claimsof others not previously disclosed to the insured at the time of thesale.

The title company pays for any losses up to the stated amount ofthe policy, and also pays any legal expenses involved in defendingthe insured against adverse claims.

Often, in the sale of a home, two separate title policies arepurchased to protect the different interests of owners and lenders.

At the time of purchase, owners can buy a one-time owner'spolicy that protects against any previously undetected title defectsfor as long as they own the home. However, when refinancing,lenders insist on a new lender's policy to protect against eventsthat may have occurred between the time the buyer purchased theproperty and when it is refinanced.

For example, there could be legal judgments against the presentowner or perhaps a lien was placed against the property by a supplierwho was not paid for home improvements.