I just had a chat with one of our pending refinance consumers. He wanted to know why he was paying for title insurance again. I explained that his owner policy wasn't being rewritten but the loan policy was.
He asked, well doesn't the loan policy just tell the lender that he is the legal owner of the property? I said, no, the loan policy tells the mortgage lender that their mortgage is in first position. What we do, then when we examine title for a refinance is to confirm ownership and then check for intervening liens and unfiled liens.
He wondered if that wasn't just a 20 minute visit to the courthouse. I said know that it also involved checking with sources outside of the courthouse, including municipal authorities.
For folks who are not in this business, it appears that we don't do much in a refinance transaction but the reality is that we have to do almost all of the work we did in the purchase transaction. We still have to set up the file, order title and lien letters, examine title, create the title commitment and policy, create the HUD-1, perform and coordinate the closing which normally takes place in the consumer's home. Then, of course, we do the post closing work of remittances and document storage. That takes resources and several people - all of whom must be paid.
Think of it like a roof. The first person, the builder, created the roof. When a new roof is needed some years later, the next person doesn't have to redo everything but they do replace almost everything and so you have to pay for materials and labor even though there is already a roof structure on the house.
In Pennsylvania, since we have filed title insurance rates, there are special discounts for consumers in a refinance. For this consumer's case, the title services would have been about $1800 is we were charging the basic rate. With the refinance discount, the title services will only be around $1300. I pointed out that the lender had given a conservative quote on the Good Faith Estimate of $1800 and so our fees were already worked into the refinance game plan.
The explanation did seem to help our refinance consumer and I hope it has also helped you. ;)