Just a week after the Community Home Lenders of America (CHLA) told the Federal Housing Finance Director Sandra Thompson that attorney opinion letters (AOLs) are viable alternatives to title insurance, Fannie Mae changed its condo selling guidelines to allow for them.
Previously, AOLs were not eligible for use in transactions involving loans secured by various property types, including units in condo projects, co-op share loans, leasehold estates, manufactured homes, and more.
Under the new selling guidelines, Fannie Mae is now permitting the use of AOLs for "loans secured by a unit in a condo project" and "loans secured by a property subject to restrictive agreements or restrictive covenants."
Fannie Mae initially introduced the acceptance of AOLs as an alternative to title insurance in limited circumstances in April 2022, as part of its Equitable Housing Finance Plans required by its regulator, the FHFA. The FHFA approved the initial version of the GSE's Equitable Housing Finance Plans in the summer of 2022.
The American Land Title Association (ALTA) has been critical of AOLs since Fannie Mae's initial announcement. The group said they expose consumers and lenders to increased risk and potentially weaken property rights protections.
"Fannie Mae’s decision to expand the allowance for attorney opinion letters in lieu of title insurance to loans purchased on condominium units will expose additional consumers and lenders to unneeded risk and weaken protection of property rights," ALTA CEO Diane Tomb said. "Title insurance provides more comprehensive coverage, particularly related to risks not easily discoverable by a simple public records search. Attorney opinions are merely a statement of professional judgment and disclose only those defects found in a review of public records. About a third of all claims paid by title insurance companies are for issues that cannot and would not be found in a public records search. Unregulated title insurance alternatives, such as AOLs, simply cannot replace the protection of title insurance."
