REAL PROPERTY
Title Insurance or Title Opinion Letters?1 By Justin L. Earley and Sterling Scott Willis2 This article compares and contrasts assurances afforded by a title insurance policy versus an attorney opinion letter. The Federal Housing Finance Agency recently introduced equitable housing finance plans pursuant to which Fannie Mae and Freddie Mac would accept written attorney opinion letters in lieu of a lender’s title insurance policy in certain limited circumstances. The impetus for the agencies’ actions stems from a desire to lower transactional costs for low-income homebuyers.3 These actions have generated considerable pushback from the title insurance industry. This article will illustrate the historical origins of why title insurance supplanted attorney opinion let-
ters by comparing attorney title opinion letters to lender title insurance policies. Also, looking to commercial transactions, we will discuss whether several items frequently contained in a real estate finance opinion letter are duplicative of what is covered by a lender’s title insurance policy, and whether these opinions are really necessary. Because of the risks pointed out below, it is very unlikely that title opinions will gain acceptance in lieu of title insurance policies for commercial real estate financings, but the issues remain for consideration. Background Any lender making a secured loan faces two problems: credit risk and collateral risk. Lenders specialize in credit risk, which we define as predicting the future likelihood that the borrower will pay the loan back on time. By its nature, credit risk involves attempting to predict an uncertain future. Lenders utilize a variety of tools to analyze, quantify, and be compensated for credit risk, perhaps most obviously by adjusting the interest rate they charge. Credit risk exists whether the loan is secured or not. Indeed, even in a secured loan a typical lender hopes never to re-
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