Title Search Remains the Lender Gold Standard For Lien Status When Funding A Refi

March 3, 2022

Refinancing is still the rage across America due in large part to record low interest rates. Consumers are refinancing to access funds to improve their property and/or for major life expenses: college, new baby, healthcare etc.

A title search in a Refi transaction provides the lender with near certainty that there are no unknown liens lurking that could prevent them from funding a Refi.  A thorough Refi title search requires a trained abstractor to check the official public records to ensure there are no judgements and/or liens against your home. If additional liens show up in the title report, the time to have them removed is then; before the lender funds. If they aren’t removed, there is a “cloud” on the title until the judgements and/or liens are removed. While there is a cloud on the title, it might be hard to borrow against or sell the property and the value itself may be in question. All of this can be prevented in most cases with a title search.

Why would a lender fund a refi without a thorough title search of the official public records before closing on a refi? There is an emerging model of automated underwriting in the title industry that seeks to reduce turn times by not including a thorough title search of the official public records that are needed to ensure that in most cases, all recorded liens against a property are not missed. Instead, the automated underwriting model relies on a lien status decision based on ‘other data sources’ and ‘machine learning’.

Yes, the automated underwriting model does decrease the turn times somewhat  for producing a title commitment for a refi; but at what cost? According to Zillow, the average refi transaction takes an average of thirty to forty five days to close. Normally, a title search for a refi transaction can be completed in one to two business days at most which is well within the average time limits for refi transactions. The average cost of a home in the US in 2021 is $408,800 according to Statista research. The average title search on a refi transaction averages $50-$100; an incredible value and a tiny fraction of what a home is worth that provides the lender the piece of mind of knowing the lien status of the home. Mistakes and omissions can happen in title reports and is why all lenders usually require title insurance if  a mortgage is being taken out on a property.

Clearly, there are no shortcuts for the lender to know if there are unknown liens that could affect their decision to fund a Refi transaction. ‘Machine learning’ and ‘other data sources’ are a “best guess” at what is actually in the official public lien records. A title search is based on a search of the official lien records and is backed up by title insurance in the unlikely case of errors & omissions in a title report. Furthermore, a Refi title search can be produced well within the average time frames required for a purchase transaction. With an average price point of $50-$100, Refi title searches are also an incredible value since it’s a fact based search of official public lien records. Title searches remain the gold standard for lenders wanting to know the status of liens on a home before they fund a Refi transaction.

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