All Forum Posts by: Tom Gimer

@Jay Hinrichs: You said "I know this is a bit techincal but same thing applies when your doing a DIL or a defaulted borrower just wants to deed the property back or to one of Morbys gator sub to folks via quit claim."

Since "Subject To" is selling the property, but not paying off the loan (buyer takes over payments), does that mean that the lender loses Title Insurance coverage since the Due on Sale is violated?  

If the property gets deeded back, does the Title Insurance get reinstated?

Fun read. I read each post. ;-) Okay, maybe not "fun" but very informative.

However, As I was reading through, I came to realize I don't actually understand some of the terms. Could someone please explain:

Is the "Preliminary Title Report" simply a list of what comes up on title but has no insurance effect? (This is what I've been lead to believe)

But, Are "Owners Title Insurance" and "Owner's Extended Coverage" and "Extended form policy" all the same thing, just different names or is there more to it?

What does ALTA do/or is for?

For anyone whose interested, here's a link to a recent paper that compares one flavor of AOL to traditional title insurance, prepared for the MBA.  My brief read found two thing that really jumped out at me.  The $50k cap on liability and a failure to identify who is going to be responsible for clearing any title defects identified in the AOL. 

In my experience, $50k is not much to spend to cure a title problem and I didn't see where its defined, if the E&O carrier spends $40k trying unsuccessfully to cure the problem, does the assured only collect the remaining $10k as the recoverable loss?

Also, with traditional title insurance, the settlement/policy issuing agent does much of the curative work, part of the reason the agent keeps a portion of the premium.  There's no charge for title clearance on the settlement statement.

Lastly, there's a large body of law the defines a title insurer's rights and responsibilities under a policy.  there's none for AOLs that I'm aware of.  Raise your hand if you want to be on the bleeding edge of the law.

blank_rome_whitepaper_on_attorney_opinion_letters.pdf (mba.org)

 From the Fannie Mae guidelines:

provide the following statement: We [I] agree to indemnify you and your successors in interest in the [mortgage] [deed of trust] opined hereto, to the full extent of all losses attributable to a breach of our [my] duty to exercise reasonable care and skill in the examination of the title and giving of this opinion.

I think the threshold for proving a breach is pretty high. The indemnification also excludes losses from mis indexed docs. That's one of the reasons I find it hard to believe there have been no losses. Also not mentioned is what happens when the indemnifying attorney dies or goes out of business and doesn't bother to get a tail rider for his E&O?

@Tom Gimer 

Are you saying there there's a lower cost because there's less work? If so, that should be done as much as possible so owners are not paying an extra 1k every transaction for needless work.

FNMA doesn't seem to agree. To wit,

"On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy."

@Jay Hinrichs Maybe so. I'm happy to drop that theory if the numbers aren't behind it.

Still Fannie Mae itself approves "Attorney Opinion Letters" as an alternative to title insurance to pair with their loans. 

"In recent years, widespread digitization of real estate records and technological advances have improved the process of confirming marketable title, but that has not translated to lower costs for borrowers. 

Fannie Mae research shows that low-income and first-time homebuyers pay disproportionally more in closing costs. Since beginning to accept AOLs under the Selling Guide in April 2022, savings to borrowers have been significant. On average, homebuyers have saved more than $1,000 when an AOL was used instead of a traditional lender’s title insurance policy. For purchase transactions, average borrower savings have been >$500, even when the borrower has elected to obtain an owner’s title policy."

...

"Fannie Mae has also purchased more than 10,000 loans with AOLs since 2009 and has not experienced losses from title claims on these loans."

https://singlefamily.fanniemae.com/media/37606/display

So is it always correct for everyone to get title insurance? FNMA doesn't seem to think so.