When a homeowner refinances their mortgage loan, their old loan is paid off, voiding the Lender’s title policy they purchased. A separate Lender’s policy is then needed on the new mortgage to protect the lender’s investment in the property. This new policy also provides protection against events that may have transpired between the time the homeowner purchased the property, and when it is refinanced. For example, the homeowner may have failed to pay a contractor for home improvements, leading the contractor to file a mechanic’s lien which could threaten the priority of the new lender’s mortgage.
In addition, lenders insist on a new title policy because it is a practical way to provide assurance to secondary-market investors that their security is valid and enforceable. It is not necessary for the refinancing homeowner to purchase a new Owner’s title policy, because that policy remains in effect and protects the homeowner’s interest in the property for as long as they own it.