Title insurance critical to reduce refinancing risk

The demand for mortgage refinancing is 111% higher than last year, an increase fueled by falling mortgage rates and renewed interest from homeowners looking to improve their financial position. Refinancing can certainly be a smart move: a way to lower monthly payments, consolidate debt, or tap into home equity.

But this sense of routine can mask the very real risks. Many assume that refinancing is simply a streamlined, less complicated process compared to buying a home. Yet recent industry data and the rise in real estate scams tell a different story, underscoring why title insurance and the work of title professionals remain essential safeguards during a refinance.

The newest Analysis of claims and claim-related losses in the land title insurance industrycarried out by the global consulting and actuarial company Milliman Inc. for the American Land Title Association (ALTA), shows that refinancing transactions carry significant risk exposure. The study, which examined a decade of insurance claims, found that fraud and forgery specifically linked to refinancing has increased sharply. Today they represent 40 percent of all title losses and costs. Even more striking, these refinancing-related fraud and forgery claims are nearly seven times more expensive than other types of claims, with an average loss of more than $207,000 per case.

This escalation is taking place alongside increasing sophistication among criminals. Thanks to advances in artificial intelligence (AI) and digital spoofing tools, cybercriminals can impersonate real estate agents, title professionals or lenders with alarming ease. They may send fraudulent wiring instructions, create forged documents, or attempt to transfer property without the real owner’s knowledge. Because such schemes are often designed to evade detection, many of the resulting title defects cannot be discovered through routine public records searches.

In this environment, title insurance remains the first line of defense for both homeowners and lenders. Unlike attorney opinion letters (AOLs) or other unregulated alternatives, title insurance provides protection against fraud, forgery and a wide range of unforeseeable problems that could affect title or threaten the validity of a mortgage. Strong underwriting protects both lenders and consumers – and title insurance is an important part of due diligence to reduce risk.

When refinancing, the original owner’s policy remains in effect, but the new loan will require a new title insurance policy from the lender. Lenders need confirmation that the property they are accepting as collateral is free of defects, liens or competing claims – and title insurance is the most reliable and cost-effective way to provide that assurance. The Milliman study also makes clear that the most common and expensive claims on lender title insurance policies arise from fraud, forgery and lien disputes, all of which can pose a direct threat to the validity of a refinance loan.

The Milliman study underlines an important point: a clean title at the time of purchase does not guarantee a clean title when refinancing. In the years between transactions, new judgments, liens, or encumbrances may have been filed, sometimes without the homeowner’s knowledge. A mechanic’s lien from an unpaid contractor, delinquent property taxes, homeowners’ association assessments, child support obligations, bankruptcy filings and other legal actions can all cloud the title. These risks quietly accumulate and can threaten a lender’s ability to rely on the property as safe collateral.

Title insurance professionals are the ones who identify and resolve these issues before closing on a refinance. They use specialized training, advanced technology and in-depth knowledge of local land records to verify ownership, detect defects and ensure every transaction is completed with certainty. Their work provides stability at a time when the real estate market continues to face economic and cybersecurity pressures. Ultimately, every aspect of this risk mitigation process is backed by comprehensive title insurance that protects both lenders and homeowners.

Ultimately, refinancing is about strengthening a homeowner’s financial foundation. Title insurance and the professionals behind it ensure that the foundation remains solid. They’re much more than just a checkmark: they help protect homeowners, support lenders and contribute to the overall health and confidence of the real estate market.

Chris Morton is the CEO of ALTA.
This column does not necessarily reflect the opinion of HousingWire’s editorial staff and its owners. To contact the editor responsible for this piece: [email protected].

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