As part of Uncle Sam’s efforts to make housing more affordable, some lenders are beginning to accept expensive title insurance alternatives.
New products, including Attorney’s Opinions (AOL), are certainly cheaper. However, they may not offer the same protection as more expensive title insurance. does not cover
No one disputes the need to make ownership more affordable. But Steve Gottheim, general counsel for the American Land Title Association, said alternatives to title insurance “(renters) may save a few bucks on the front end, but they’ll cost more on the back end.” It may take,” he said.
First, a simple primer. Before entering into a contract, all lenders will order a search of the property records to determine if there is anything that violates the homebuyer’s proprietary rights. And they need title insurance to protect against the possibility that the search didn’t discover something that put a cloud on the title: perhaps an unrecorded easement caused a neighbor to land on the property. Up to a claim to the property that may become accessible or the previous owner’s long-lost heirs may appear. Alternatively, previous deeds may have been forged.
In such cases, title insurance protects the lender, not you. However, it will be paid at the time of settlement as part of the settlement cost. You will also be asked if you would like to purchase additional policies that protect your rights, including legal assistance. Together, both policies can cost upwards of $1,000, depending on many variables.
About 80% of all borrowers opt for the owner’s policy, according to ALTA, a trade association for the title business. So Fannie Mae recently joined Freddie Her Mac accepting her AOL in lieu of title insurance “under limited circumstances.”
Fanny and Freddy are government-backed businesses that buy loans from lenders and combine them into securities that they sell to investors. Together, they are involved in at least half of all mortgages.
It’s hard to keep track of AOL’s costs. United Wholesale Mortgage recently announced a new Title Review and Closing System (TRAC). This completely eliminates the need for a lender policy. UWM reviews titles and closing documents to ensure titles are clear and expedite the closing process. Cost: $350 flat rate.
Vendor SingleSource, on the other hand, offers a scalable, affordable, and standardized AOL. A flat fee is charged for refinancing, and a portion of the cost of title insurance on the purchased fund loan is charged.
The closing platform offered by iTitleTransfer runs about $1,500 on a $411,000 loan. This eliminates the $3,085 title coverage and associated costs, said managing director Theodore Sprink. The platform also extends protection for law firms to buyers, sellers and lenders for defects and related issues that affect clear property rights, he said.
Further complicating the comparison, it is impossible to determine the average cost of title insurance, as premium rates are subject to state and local regulations.
In Massachusetts, the lender’s policy on a $250,000 mortgage is $625, said Boston National Title Nathan Bossers. But if the borrower also purchased his own insurance, the total cost would be his $1,088.
According to ALTA, for a $250,000 home with a $200,000 mortgage, the approximate cost of the combined insurance for the lender and owner is $1,700 in Texas, $1,350 in Florida, and $1,440 in New York. . The difference in cost is obvious.
However, in some states, the seller pays the owner’s premium. Elsewhere, the cost of compensation is included in the cost of the loan. In these cases, there is absolutely no difference except that you will pay interest as long as the mortgage is valid.
ALTA spokesperson Jeremy Yohe said: More than that, however, is the lack of protection provided by AOL. “If there is an issue of ownership on the property that is subject to the opinion of the lawyer,” Mr Yohe told me. If not proven, the plaintiff will have to pay the legal costs of litigation. ”
On the other hand, title insurance includes a legal representative. It also covers many items not covered by AOL, according to a list compiled by the Greenberg Traulig law firm.
But the problem is: According to the Insurance Information Institute, only 2.4% of title policyholders filed claims in 2020 (the last year for which claims data is available). Most claims involve fraud, forgery, errors in public records, and liens overlooked by examiners. Furthermore, in his four times of searching and inspecting the title he found no problems three times. This is the fact that “coverage is no longer needed,” Sprink claims.
He has spent 25 years in the title insurance field and says he believes the business is “a dinosaur ripe for disruption”.
Bottom line: If you want to save money, roll the dice with AOL. But if you want extra protection, opt for traditional title insurance. And remember, it’s the buyer’s choice, not the lender.If options aren’t offered, ask for them.
Lew Sichelman has covered real estate for over 50 years. He is a regular contributor to numerous shelter magazines, housing and mortgage industry publications. Readers can contact him at his firstname.lastname@example.org.