The title insurance industry has a proven record of protecting homeowners’ rights to property. As we know, title insurance protects property buyers from threats to their property rights, including recording errors, unpaid liens, forged signatures on deeds, and fraudulent activity. The title industry has played a critical role in keeping homeowners safe and the real estate market healthy for over a century.

While the industry has evolved greatly with title professionals embracing artificial intelligence and automation, our mission has never wavered: making the American dream of homeownership possible and protected for all. In fact, title insurance is the key to unlocking wealth in America, as it provides the capacity and security necessary for transactions.

Recently, certain attorney opinion letters (AOLs) have been promoted as alternatives to title insurance policies, claiming to reduce costs. However, these products shift risk to lenders and consumers, who will ultimately have less recourse and greater costs should their property rights be challenged. These title insurance alternatives only cover title defects that can be found by a public records search, while title insurance protects against known and unknown risks not found in a search.

Title insurance is rigorously regulated at the state and federal level, with statutory reserving and rate transparency requirements intended to ensure robust consumer protections. In contrast, emerging products lack a similarly comprehensive regulatory regime, raising questions about how they will be regulated and who will provide oversight.

Title insurance is essential, providing a one-time fee paid at closing that protects a consumer’s property rights for as long as they own the property. The benefits and cost of title insurance compared to other products are unrivaled, with rates varying from state to state. At five years, the daily cost of coverage for a $400,000 home is about 77 cents per day, dropping to 38 cents a day at 10 years, and just 13 cents a day by the time a 30-year mortgage is paid off.

As we navigate 2023’s uncertain real estate market, the title industry will continue to advocate for the protection of American consumers and the safety and soundness of the real estate ecosystem. Our industry will continue to educate, advocate, and innovate to minimize risks to both consumers and lenders.

The post Title insurance: a beacon of stability in an uncertain real estate market first appeared on titlecapture.com.

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.”

The post The rise and rapid collapse of the attorney opinion letter first appeared on titlecapture.com.

As pointed out recently by the American Land Title Association (ALTA), title insurance protections replaced Attorney Opinion Letters and other alternative products historically because these products were considered too risky. Read on to learn more.

What Are Attorney Opinion Letters?

A lawyer approved by the lender to offer their insight writes a legal opinion in letter format, also known as a title opinion letter or opinion of title, to help determine title and other factors related to property ownership. Supporters of AOLs claim that title insurance services are too expensive and that high costs make it impossible for some first-time and low- and middle-income borrowers to become homeowners.

Why are we concerned? Lenders claim that AOLs are only allowed as alternatives to title insurance policies in “limited circumstances,” but it’s entirely possible that they’re testing the waters for future broader usage. We believe it’s a passing trend, but it’s wise to keep an open mind about what might happen if AOLs become the standard for EHFPs or even other lending scenarios involving property sales.

What Are the Main Risks to Borrowers and Banks?

The “perceived” upfront savings at closing acquired with an Attorney Opinion Letter don’t offset the long-term risk. 

Unlike title insurance, Attorney Opinion Letters offer zero coverage for items not found via a public records search, such as federal tax, HOA liens, or even misindexed items. An AOL doesn’t cover forged seller deeds or fraud related to a previous owner’s will. It doesn’t cover fees and costs related to lawsuits for either borrower claims or lender defense.

As noted by ALTA, a buyer or lender that discovers issues with a property post-transaction must prove that the attorney who issued the AOL acted negligently, which is as difficult as it sounds. The burden is entirely on them both in terms of proof and costs. They would need to be able to afford to pay legal fees. Depending on the requirements outlined with a specific alternative product, the borrower might also have to agree to foreclosure even to make a claim against an attorney.

Worse, criminals often target first-time buyers and low- and middle-income borrowers. They deal with negligence and fraud more than any other type of borrower, which means that they’re more likely to lose the home that they worked hard to obtain if they rely on limited protection from an AOL. Additionally, no one knows exactly what happens legally if the attorney dies during an investigation into a claim or has too many claims against them because of negligence and no remaining coverage.

Title Insurance Is the Obvious Choice

On the other hand, title insurance offers low-cost protections that cover multiple potential scenarios. Title insurance underwriting ensures that no other claims of ownership exist so that a borrower can clearly have those rights. The majority of title agency owners have also listened to clients about costs. They’re using more cutting-edge technologies to streamline processes and eliminate errors to reduce associated costs.

The post Attorney Opinion Letters: The Risks and Realities in Homeownership Finance first appeared on titlecapture.com.

Lenders must show that an approved title insurance policy covers their loans. That policy must be issued by an established industry insurer and include all supporting documentation. An AOL letter must clearly state that the title condition of the property in question “is acceptable and the mortgage constitutes a lien of the required priority on a fee simple estate in the property.”

What Qualifies an AOL in Fannie Mae News

The attorney must be appropriately licensed and carry sufficient malpractice insurance to cover the title opinions. Should a lender receive an AOL instead of a title insurance policy, that lender must report it as Special Feature Code 155 upon disbursing the loan.

The American Land Title Association issued an email reassuring lender partners and government-sponsored enterprises (GSEs) that it is currently reviewing this recent Fannie Mae news and working to develop a meaningful response. He asked partners to remember the “vital role our industry’s products and services play in a well-functioning housing finance market.”

The Fannie Mae news prompted no response from the company

Now, Voxtur Analytics has created a product designed to take the sting out of title insurance. The full-coverage title alternative is available for a fraction of the cost of a title insurance policy.

A Voxtur attorney opinion letter (AOL) combines the wisdom and credibility of a legal opinion with data-driven property review technology. According to the company, their product is a “fully compliant alternative” to traditional title insurance policies.

The new product includes an attorney’s title opinion letter backed by a proportionate sum of transactional liability insurance. It will be available in select states, followed by a national rollout shortly after.

What Does This Mean

According to Voxtur, the new offering could save homebuyers a significant sum compared to purchasing a traditional title insurance policy. According to some estimates, the savings could amount to “an entire mortgage payment.” According to Fannie Mae news and Jim Albertelli, CEO of Voxtur, closing costs are currently a barrier to home ownership. To address that need and reduce closing costs in the bargain, title insurance alternatives are routinely being developed.

In 2003, a title insurance company called Radian Group Inc. launched Radian Lien Protection Policy. It was marketed as an alternative to traditional title insurance. A California judge later ruled that the product was title insurance. Meanwhile, the mortgage and real estate services provider decided to purchase its own insurance underwriter.

The post Fannie Mae News: Will Written Lawyer Opinion Letters Replace Traditional Title Insurance? first appeared on titlecapture.com.