Today's title insurance alternatives have updated protections making them more viable than they've traditionally been, according to a new commentary aimed at clarifying
"Many of the concerns that have been raised target traditional AOLs and do not contemplate the coverage provided by the modernized version," Hallman Eady and Spencer Mobley, partners at law firm Bradley, said in a recent report on attorney opinion letters commissioned by Alita.
The commentary finds that an AOL wrapped with an errors and omission policy and a closing protection letter such as Alita's "addresses significant title-related risks, including the most commonly encountered," which makes it "a viable option" for mortgage and real estate industries.
Critics have contested the degree to which attorney opinion of title letters can safely compete with traditional insurance as key mortgage investors increasingly offer increased latitude for alternatives
The new white paper references other legal commentaries commissioned separately by title insurance and mortgage banking trade groups. The attorneys also note that the Consumer Financial Protection Bureau's recent
The American Land Title Association said the white paper "again demonstrates what ALTA has been saying for the last few years: unregulated title insurance alternatives—including attorney opinion letters — simply fall short."
Title insurance alternatives are something that could expose lenders to "significant unforeseen costs," according to the association.
"AOLs lack coverage for title defects not discoverable from a search of the public records, and typically don't cover fraud," ALTA added, citing Milliman's nationwide findings that almost 30% of insurance losses and claims costs stem from issues outside public records.
The Bradley report acknowledges that historically title insurance came into being because of shortcomings in traditional AOLs, and that even when coupled with additional protections, it "is not identical to title insurance."
It also confirmed some other reports that an attorney's opinion based on a standard title search and related protections may not find or cover property ownership conflicts outside the public record. This could include fraud.
However, it also claims the E&O policy "insures the abstracting and closing services provided, which account for the largest share of losses reported by title insurers."
ALTA questioned the limitations of data used to determine the largest share of losses, noting that it came from a single state, and pointed to nationwide Milliman numbers indicating the largest source of claims is a "basic risks" category that includes fraud.
The average claim cost in this category is over $143,000 for risks "not ultimately covered by attorney opinion letters," according to the association, which further noted that fraud and forgery claims more than doubled in the last two years.
There are different additional protections that can be added to title insurance alternatives to address risks that may differ by loan, the Bradley attorneys noted.
Ultimately, when it comes to the question of what coverage is appropriate, "each lender or homeowner will need to engage in a cost-benefit analysis and choose the most appropriate form of coverage for the circumstance," they said.
