By Benny L. Kass
Saturday, May 5, 2007

Q: We bought our home in 1989. We have refinanced twice, and we didn't receive a new title insurance policy either time. Is a new policy necessary when one refinances? Also, in reading our policy, it appears that there are a lot of exclusions. Is it possible to obtain a new title policy from another company now?

A: For a lot of home buyers, title insurance is a mystery. You go to settlement, and among the many items you have to pay is a large sum for lender's title coverage and owner's title coverage. You pay it, primarily because the title attorney tells you that you will not get your loan unless the lender has adequate insurance. Several months later, the settlement company mails your insurance policy to you. You tuck it away with the rest of your home-purchase documents and then forget about it.

What is title insurance, and why is it necessary?

You bought your house in 1989. How long before that did the seller own it? There is in real estate a concept called "chain of title." A sells to B, then B to C and so on until you are about to buy your house. You want to be assured that the chain of title is unbroken.

For example, until the 1990s, in the District we had "dower rights." This concept came from old England, where a spouse could not sell a house without getting the approval of the other spouse. (In technical terms, this was known as "dower and curtesy"; dower was to protect the wife and curtesy protected the husband.)

When you bought your house, did both husband and wife sign the deed? If not, absent some legal explanation, the non-signer might have a claim against your house.

Land records are kept in the office of the recorder of deeds. Nowadays, many such offices are computerized. But before computers -- even before typewriters were invented -- people were buying and selling houses, and deeds were used to convey the property.

Because human error is always a potential problem, there are occasions when there are clerical errors in legal descriptions. For example, your lot may be number 0712 but is recorded as 0721.

Additionally, where there is real estate, there will always be scoundrels. Forged deeds and phony notarizations are not uncommon. These issues can and will cause defects, also known as clouds, on the chain of title.

Title insurance can be your protection against these problems. More important, lenders will not make mortgage loans without obtaining this protection, called a lender's title insurance policy. As the buyer, you pay for this insurance.

Your lender leaves you no choice about paying for its insurance. But you are not required to buy owner's title insurance, which protects you personally if there is a problem. Unlike homeowner's insurance, which protects you from events that may occur after the policy is issued, title insurance protects only against losses from matters that developed before you obtained the policy. However, once you have a title insurance policy, you and your heirs are covered as long as you have any interest or involvement in the property.

Should you buy the optional owner's title policy? That's a difficult question, and the answer depends on the facts of the transaction. Clearly, if your seller has owned the property for many years, the likelihood of a problem is slim. Some people are risk takers; others are not. The cost of the additional owner's insurance is relatively small, so you may opt to take it for better coverage. The fact that you had to buy a lender's policy does not in any way protect you.

I often make the analogy to vacation insurance: It's a lot of money, but if you cannot take that trip, it's nice to get a full refund.

You asked if you needed to obtain owner's title insurance when you refinanced. The answer is no. Once you have an owner's policy, you are covered forever. Your new lender will want lender's coverage, but you do not have to pay for the extra coverage. And don't let the settlement company or attorney convince you otherwise.

You also ask whether you can obtain a new policy from another company. I don't see why not, but I don't know why you need it. If you want to get a new policy, you will have to have your title searched pay a lot of upfront costs, in addition to the cost of a new policy.

You are correct in that there are a number of exclusions in your policy. The usual ones include: