Good Afternoon —
Although a few weeks have passed since Fannie Mae's announcement that it would accept loans with an attorney opinion letter in lieu of a title insurance policy, the announcement inspired quite a bit of curiosity on my part about the history of title insurance and its use in other countries.
According to the American Land Title Association, title insurance was created in 1868 and the first title insurance company was founded in 1876 by a group of conveyancers in Philadelphia. Prior to the advent of title insurance, before taking title to a property, the buyer required that the title be free of any rights, interests, liens of encumbrances of others for which the buyer would be responsible for. A title search would be conducted and then a conveyancer would issue an opinion on the title, incredibly similar to the attorney opinion letter option now available thanks to the Fannie Mae announcement.
While the adoption of title insurance occurred nearly 150 years ago in the U.S., its adoption in other countries, such as Canada, the United Kingdom and Australia has been more recent.
Howard Turk, the founder and managing director of Turk & Company, was a real estate lawyer in Canada when "Big Four" title insurer First American approached Canadian officials about opening title insurance offices in Canada in the late 1980s.
"I was on the Executive of the Canadian Bar Association's Real Property Section as well as a member of the Ontario Real Estate Lawyer Association (ORELA) when First American decided they wanted to enter the market in Canada. Part of the mandate of ORELA was to try to block First American from becoming licensed and operational because they feared First American would put real estate lawyers out of business in Canada. I thought that if everybody is so scared of them, there must be something to this."
Turk said that this thought led to him having a conversation with the First American executives trying to launch the business in Canada.
"I ended up joining them as one of the first few employees. In that role I helped them grow from a start up to a 900 employee company," he said.
Turk went on to lead similar operations for First American in the U.K. and Australia.
Prior to title insurance's presence and adoption in these countries, attorney opinion letters were used to guarantee property titles. In most instances this worked fine, but when there happened to be a claim on the title after the sale had been completed and an attorney opinion letter had been issued, things sometimes got sticky.
"In the AOL model, the 'insured' party is typically the attorney, not the lender," Turk said, "Attorneys have malpractice insurance. So, if there is a loss on the part of the lender because the work the lawyer did was somehow incorrect, then the lender first has to prove negligence on the part of the lawyer, and then they can access the lawyer's malpractice insurance. In a title insured environment the insurance policy is issued directly to the lender so they become the named insured, which is a huge difference. Title insurance is a strict contract of indemnity, which does not depend on any kind of finding of fault. The loss speaks for itself without the necessity to prove negligence."
As the song says "Everything old is new again," but will that be the case for AOLs? Will they eventually come roaring back like neon, flared jeans and bucket hats? And perhaps more importantly, will lenders be ok with the lesser coverage provided by AOLs versus title insurance policies? Share your thoughts with me at brooklee@hwmedia.com.
Until Next Week,
Brooklee Han
Real Estate and Title Industry Reporter
brooklee@hwmedia.com
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