We have repeatedly emphasized to our clients and others that Attorney Opinion Letters are risky alternatives to title insurance. We can’t stress enough that these letters can never replace title insurance.
Read on to learn why AOLs are guaranteed to fail.
A Repeat of History’s Worst Mistakes
Historically, property sales in the United States relied on a legal opinion by an attorney or special lawyer, known as a conveyancer, about ownership facts. It offered a borrower or lender a degree of relief from worry during a sale by legally confirming ownership. At the time, we were no other legal options. That said, AOLs eventually fell out of favor for good reasons.
Government-sponsored enterprises like AOLs as they are more affordable for low-and-moderate income families, minorities, veterans, and others seeking to acquire homes through Equitable Housing Finance Plans. Yet, in practice, they are so horribly risky that title insurance and associated protections were created to replace them.
By 1868, borrowers and lenders in the United States were fed up with making claims in courts against lawyers who lost money or properties due to errors and negligence. That year, the Pennsylvania Supreme Court ruled in favor of a conveyancer who used misinformation about a lien incorrectly written by a separate lawyer. This resulted in a purchaser losing money and land they thought they owned. By 1876, a group of conveyancers formed the nation’s first title agency to protect borrowers and lenders with title insurance.
Why Are AOLs So Dangerous?
An Attorney Opinion Letter doesn’t provide coverage when an attorney misses important information or provides incorrect information. A borrower or lender might not receive important details about misindexed items or liens. An AOL offers absolutely no coverage or protection when dealing with forged deeds and wills or someone in the process commits negligence or fraud.
For court cases, borrowers and lenders receive no coverage for fees or costs, meaning they potentially face tens of thousands of dollars extra to pursue justice. Both parties must also prove that the attorney purposely wronged them or even agree to foreclosure. Lastly, AOLs don’t provide coverage if an attorney under investigation dies before an investigation ends.
It’s Time for AOLs to Disappear Permanently
The American Land Title Association (ALTA) has made its position clear that title insurance is far safer and more valuable than an Attorney Opinion Letter as it protects all high-risk scenarios. Underwriters always verify ownership claims, deeds, and wills. If an error occurs, coverage protects the interests of borrowers and lenders.
Supporters of AOLs can’t argue affordability because title agencies now use advanced technologies to automate manual processes, prevent errors and reduce costs. According to ALTA’s CEO Diane Tomb, the cost claim by Fannie Mae, Freddie Mac, and others is false. ALTA statistics show that title insurance has decreased costs for almost two decades, on average “7.8% nationally since 2004, and roughly 5% in the last two years.”