CLTA Focuses on Attorney Opinion Letters

The Wall Street Journal (WSJ) recently published an article about Fannie Mae expanding the use of attorney opinion letters (AOLs) for lenders in limited circumstances for loans secured on condo properties and those subject to restrictive agreements or covenants. The CLTA is unaware of AOLs being used in connection with loans on California properties but is closely following this issue. In the case of a residential sale in California, the California Association of Realtors Residential Purchase Agreement (RPA) addresses the issuance of title insurance.

Indeed, an attorney opinion letter may well fall under the definition of title insurance in California. Section 12340.1 of the Insurance Code defines title insurance to include insuring, guaranteeing or indemnifying holders of liens against loss of damage suffered by reason of liens, encumbrances, and defect, as well as the invalidity or unenforceability of any lien or encumbrance. “Holders of liens or encumbrancers” are further defined in Section 12342 to include institutional third parties referenced in federal law, specifically Fannie Mae and Freddie Mac.

The CLTA has previously addressed the threat posed by unregulated, non-insurance products. Over the years these products have included the Radian lien guarantee program and the Norwest TOP program. In that regard, the CLTA continues its long-standing efforts to educate legislators, regulators, and consumers about the critical benefits of title insurance and the risks posed by unregulated title insurance alternatives. State and federal regulators may need to be reminded of the risks posed to financial institutions by these products.

The ALTA has sought to provide reporters and others with the key facts as to the benefits of title insurance. Prior to the publication of the WSJ article, the ALTA had engaged with the WSJ, yet the article neglected many key facts and included several inaccuracies about title insurance. In response, ALTA President Don Kennedy submitted a letter to the editor (LTE) pointing out the important insurance protections provided by title insurance. This is clearly a matter that needs the constant attention of the ALTA and state title associations.