If you’re contemplating a real estate sale in Massachusetts, you may have heard that title insurance requirements are changing. Federally-backed mortgage giants Fannie Mae and Freddie Mac have announced that lenders are allowed to accept attorney opinions in place of title insurance in many real estate transactions. That option could save you money on closing costs and time in real estate transactions.
However, before you decide which option is better in your situation, it is important to understand what this change means and how it could work in Massachusetts.
Traditional Title Insurance Requirements
Title insurance is a policy that protects lenders and property owners in a situation where a third party might have a claim that affects the validity of the owner’s title. If it turns out that the property seller or a previous owner didn’t have clear ownership rights to the house, then insurance covers the buyer or lender’s losses.
Problems with property title are rare, but they do happen, and the impact can be very costly. For that reason, Fannie Mae and Freddie Mac – the big entities that buy up mortgages for the secondary mortgage market and thus effectively control the policies of many mortgage lenders—traditionally required lenders to have a paid title insurance policy meeting specific requirements. These policies can protect homeowners and lenders from problems such as:
- Errors on property deeds
- Surveying errors
- Forgery issues
- Boundary disputes
- Prior building code violations
- Liens from tax bureaus, contractors, or others
- Claims by heirs, former spouses, or others
Because they will have to pay out if there’s a problem, title professionals do research before issuing insurance policies, and often they will take or require others to take steps to clear up problems before a sale closes.
Attorney Opinion Letters as an Alternative to Title Insurance
Fannie Mae and Freddie Mac have announced that lenders can now accept an attorney’s letter of opinion in place of title insurance in many cases. Although official announcements of this new policy stated that letters would only be accepted in limited circumstances, from their rules it appears that the limitations are themselves very limited. Attorney opinion letters will not be accepted in sales involving condo units, manufactured homes, cooperative share loans, property under restrictive covenants, and and a few other situations, but they will apparently be accepted in many situations.
Title Insurance for the Buyer vs. the Lender
One important fact to note in the policy change is that the new rules affect policies purchased for the benefit of lenders rather than property owners. Those who are buying property are not required to buy a policy protecting their interests in the title. But because this is a one-time cost that can protect them and their heirs for as long as they own the property, an investment in title insurance for the buyer is often a wise choice.
If a lender in a sales transaction chooses to use an attorney opinion letter instead of title insurance, the impact on the buyer could be purely positive. An attorney could potentially provide an opinion much quicker and at a lower cost than a title insurance company can produce a policy for a lender. The risk is assumed by the lender rather than the property buyer.
Work with an Experienced Real Estate Attorney to Protect Your Interests When Buying or Selling Property
Real estate transactions are far more complicated than most other sales transactions people generally experience in their lifetimes. Incidents from years or decades ago can affect the validity of a property title or cause other problems. To protect your investment, it is a good idea to work with an experienced attorney who knows how to spot potential problems and can resolve difficulties before they turn to costly delays. To talk to the team at Jordan & White about your real estate concerns, contact us today.
