Great idea. It is also unbelievable that when I recently refinanced my mortgage, I had to pay for a title search again.

It is real simple. Title insurance and the title search are not to protect you. They are to protect the lien holder, ie: the lender. When a new lender is assuming the mortgage on your property in a refinance, they have to be sure that no NEW liens against title have come up since your last title search. A title company will search public records to confirm this. They will then issue a new insurance policy that backs up what their search showed. That policy in essence protects the lender should their have been something missed in the title search. If a title policy were transferrable, the original title company that did the search when you bought the house, would be liable for the work of subsequent title agencies. The policy on a refi, however, is considerably less expensive. Another note, I have had borrowers ask about title searches on new construction, after all, they are the original owners of the house. But land has been held in this country nearly 400 years, and someone may have a claim to title on the land.

Yes and no.

The title search and title insurance do protect the lien holder, of course, but they also protect the titleholder. Lenders require borrowers to purchse title insurance for the lenders (and because the borrowers are paying for the insurance, the lenders are not sensitive to the cost of the insurance). But the borrowers (i.e., the homebuyers) can, and ofter do, purchase their own title insurance.

Title insurance is different from all other types of insurance. Medical, life, auto insurance all insure against a future event -- the poilicyholder getting sick, dying, having a car crash, etc. Title insurance insures against an event in the past -- some problem that occurred prior to the purchase of the property that affects title to the property.

As learymortgage pointed out, a title insurance policy conceivably could insure 400 years' worth of possible problems on a title. I can see paying $1,500 for a policy that protects me (or the bank) going that far back. But if I buy a title insurance policy on May 1 from First American and sell the property to learymortage on June 1 -- he will also have to pay First American $1,500 for essentially the same protection (though, granted there is an additional month of risk). It still seems logical to me that if First American was willing to insure the property on May 1 for $1,500 that they would agree to take on an additional one month of risk (after all, it is the same property) when learymortgage buys it, for much less than $1,500.

My question is why do Buyers purchase title insurance to protect lenders, and have to purchase a separate owner/title insurance to protect themselves? This is the only kind of insurance I know of in which you're paying to protect another party. I read an article on msn.com that this is done simply because it's always been done this way and no one questions it.

The title insurance policy insures the dollar amounts that each party contributes to the transaction. In this regard, the lender and the home buyer have different, though related interests. The lender is generally putting up hundreds of thousands of dollars for the purchase of the property. The home buyer is generally putting up a downpayment that is only tens of thousands of dollars.

The reason that the home buyer pays for the insurance is that the lender simply insists. (Of course, if you were lending hundreds of thousands of dollars of your money, you would probably also insist that the person you were lending it to pay to insure it). These days, of course, where many loans are no points and no closing costs, the home buyer does not pay and the costs are simply rolled into the loan.