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I am unsure as to why you would require title insurance for the home itself when you already have title insurance on the lot.
Title insurance protects your interest in the property against adverse claims from prior owners, prior adverse interests in the property, and undisclosed or surprise liens or encumbrances
such as easements
on the property.
Unless you are worried about encumbrances or liens against your manufactured home, it does not seem reasonable to require insurance on the lot. The only way I can see such insurance being required is by contract (meaning your lot insurance requires insurance on any improvement as well as on the lot), in which case you are bound by contract as opposed to need.
If you are willing to take the risk of a prior encumbrance on the manufactured home, and your lender is willing to allow you to take that risk (a discrete or remote risk on its otherwise secured loan), I cannot see a basis for title insurance, but again that is an issue of contract.
If there is a specific statute they are referring to, or a specific legal issue, perhaps that is a different matter, but the fact that they are saying their services are required by state law, but alternatively they can be performed by an attorney makes the need for services questionable. I cannot find any statutory basis for title insurance in this type of transaction, and the claimed need for this specific type of insurance (title insurance) is not one that benefits public policies or state interest.
I hope the above is helpful, please let me know if you have any questions.
Thank you for choosing Just Answer, please do not forget to rate my answer so that I can receive credit. I do wish you the best in this matter, and I hope that the insurance company will retract its unreasonable position in this matter. Again, if you have any questions please do ask.