Buying a home is an exciting journey, but understanding the finer details, like title insurance versus attorney opinion letters (AOLs), can be a bit confusing. Let’s break it down to make it simpler for you.
What is an Attorney’s Title Opinion?
A title opinion, usually prepared by an attorney, identifies any visible issues with the property’s title based on public records after a thorough search. It reflects the attorney’s judgment on the property’s legal status. While this method is often cheaper than title insurance and provides valuable insights, it does not guarantee the title’s status. If the attorney makes a mistake, the owner can file a negligence claim, but there’s always a risk that a defect could cause the owner to lose the title.
What is Title Insurance?
Title insurance protects both homebuyers and lenders from problems with the property’s title that might come up after the purchase. Essentially, it helps ensure that you won’t lose your property due to hidden issues like errors in paperwork, fraud, or missing heirs. Though it might seem expensive, title insurance offers broad coverage and gives you peace of mind by covering payment and damages from property loss due to title defects. Additionally, title insurance provides defnse costs, including attorney’s fees, which AOL’s do not.
Title insurance goes beyond just checking public records; it also insures against risks that might not be discoverable during a standard title search. This includes things such as:
- Forgery
- Seller impersonation
- Survey errors
- Missing or undisclosed heirs
- Unprobated wills
- Incorrect legal descriptions
- Deeds delivered after the death of a grantor
- Clerical errors
- Transfer of title by a minor
- Non-delivery of deeds
- Property rights resulting from a marriage or divorce not disclosed by a public record
While it might cost a little more upfront, title insurance provides comprehensive coverage to protect one of the biggest investments you will ever make.
Key Arguments Against Attorney Opinion Letters (AOLs)
Choosing an Attorney Opinion Letter over title insurance may seem like a cheaper option, but there are several risks involved:
- Reliability: AOLs rely on the individual attorney or firm. This might not offer the same level of reliability as national title insurance companies. What happens if the attorney retires and a problem with title arises?
- Liability: If there is a mistake in an AOL, attorneys may not be held liable. This leaves buyers with little recourse if issues arise.
- Lender Acceptance: Many lenders prefer title insurance, and some may not accept AOLs at all.
- Protection Level: Title insurance offers broader protection, covering a wider range of potential issues, including inaccuracies or omissions in public records, forgery, fraudulent execution of documents, taxes, special assessments not shown of record, survey matters, rights of persons in possession, validity of mobile home titles, claims or interests of heirs, and more. AOL’s also do not take up legal defense costs like attorney’s fees, so the homeowner would be responsible in the event of a title problem.
- Fraud and Forgery: AOLs do not protect homebuyers against defects in the chain of title, such as fraud and forgery.
- Limited Use: AOLs are not accepted in certain transactions, like loans secured by condos, co-ops, or manufactured homes.
Disadvantages for Homeowners When Lenders Only Request Attorney Opinion Letters
When lenders only request an AOL instead of recommending an owner’s title insurance policy, it creates significant disadvantages for homeowners. Although an AOL may seem cost-effective, its limited coverage does not offer the same protection as title insurance. Homebuyers should know their right to request an owner’s title insurance policy to safeguard their investment.
Don’t Compromise on Protecting Your Investment
While AOLs might appear cheaper, their coverage is limited. Neither an owner’s title insurance policy nor an attorney’s title opinion guarantees title status; defects can still cause loss of title. Owners should weigh the benefits and risks of each option carefully to make an informed decision. It’s wise to go ahead and request an owner’s title insurance policy, especially if the seller is covering the cost.
Remember, title insurance provides payment and damages with your loss of possession of the property that results from a defect in title. It’s your right to purchase this insurance and protect your property investment. Don’t compromise on protection—opt for an owner’s title insurance policy!