Cutting Costs in Real Estate: The Power of Insured Attorney Opinion Letters Explained

In a recent podcast with ProTitle CEO Alex Goldovsky, Stacy Mestayer, President of Alita Group, offers a detailed exploration into the transformative potential of modern insured attorney opinion letters (AOLs), as an alternative to traditional title insurance. These modern AOLs present a unique solution, blending the stability of an attorney opinion with the protection of comprehensive insurance coverage. In the discussion, Stacy explains the distinctions between traditional attorney opinion letters and their modern counterpart, the insured AOL, emphasizing coverage points and debunking misconceptions.

This in-depth conversation is a must-watch for lenders, title agents, real estate professionals, and potential homebuyers interested in risk-neutral alternative solutions to reduce closing costs in a market where every dollar counts.

Modern Insured Attorney Opinion Letters: Redefining Title Assurance

The landscape of property transactions is evolving with Alita Group’s innovative approach to title assurance. Traditional attorney opinion letters are typically issued on a case-by-case basis by attorneys charging hourly rates, and do not transfer from investor to investor in the secondary market. Alita’s insured AOL is a scalable solution that solves these issues.

What Sets Insured Attorney Opinion Letters Apart? 

Alita’s modern iteration of an attorney opinion letter is designed to act like title insurance but is structured as an insured attorney opinion letter that offers comparable coverage. Stacy Mestayer explains, “It’s scalable, insured, and something that can be offered nationwide on a consistent basis, much like a title insurance policy. It looks the same every time.“

Unique Insurance for Unique Needs

In describing the high-volume, transactional insurance policy behind the attorney opinion letter, Stacy explains “The insurance around our product is specific and separate from traditional liability insurance. It’s a mortgage service provider’s E&O policy, created specifically to cover AOL. This insurance follows the loan into the secondary market, which again distinguishes it from a traditional attorney opinion letter“.

Transformative Potential 

Stacy underscored the transformative potential of insured attorney opinion letters, noting their ability to reshape the capital markets and traditional title insurance landscape. Host Alex Goldovsky enthusiastically noted, “I think we’re going to see a lot of savings for the borrower, a lot of reshuffling in the capital markets, and reshuffling in the traditional title insurance space.“

Harnessing Technology: Alita’s AOLPro™ Platform

Alita Group’s AOLPro Platform is designed to facilitate the production of insured AOLs on a nationwide scale. Licensed to established service providers like ProTitleUSA, the AOLPro Platform incorporates the entire framework necessary for the efficient production of insured AOLs, including the letters, the review workflow, the attorney network, and the insurance.

Fixed Cost Model for Nationwide Efficiency 

In the podcast, Stacy explains the economic advantages of their system, which is a nationwide fixed cost model. This contrasts sharply with traditional title insurance, which can vary in price significantly by state and loan amount. An insured AOL offers predictable pricing and substantial savings, especially in states with traditionally high title insurance rates.

Quality Control and Streamlined Workflows 

The AOLPro Platform’s design focuses on ensuring quality and reliability. “We monitor and vet our title providers in the same way that a title insurance underwriter would to ensure that their processes are up to standard. We’re monitoring everything that they’re doing that way. We’re monitoring the attorneys and everything they do in our system to make sure that their performance is up to par,” states Stacy. This continuous monitoring and vetting ensures that all parties involved adhere to high service standards.

Integration and Workflow Optimization 

Alita’s platform is not just about issuing AOLs; it’s about seamless integration with existing title production systems. “We have integrations between our system and title production systems to streamline the workflow,” Stacy points out. These integrations are crucial for reducing bottlenecks and enhancing the speed and accuracy of the service.

Empowering Partnerships 

The platform operates under a service provider agreement model to simplify the legal framework for service providers and lenders, fostering easier adoption and scalability across various states.

Coverage Clarity: What Insured Attorney Opinion Letters Cover 

Understanding the coverage specifics of modern insured AOLs is critical for stakeholders considering this alternative solution. While attorney opinion letters provide robust protection, there are some distinctions to be aware of.

Addressing Distinctions and Enhancements in Coverage

In the podcast, Stacy clarifies the distinction between title insurance and the insured AOL: “Because it is not insurance, but rather an insured product, it cannot cover things that are not preventable or discoverable. So, if something were to have happened two transactions ago in the back chain of title that was never discovered and it was not discoverable at the time the AOL was issued and it pops up in the future, that would be one of the very nuanced things that our AOL insurance could not cover. However, we do cover fraud in the current transaction in the same way that title insurance does.” For a more detailed comparison, see the white paper released by Bradley Arant that dives into the coverage of Alita’s AOL, which provides a factual and data-based analysis of coverage and risk.

People often assume that an attorney opinion letter does not offer borrower fraud coverage, however Stacy highlights this coverage, stating, “We cover both borrower fraud and we also offer a CPL, which covers other types of fraud. That is another difference between other offerings on the market and what we have.” This coverage ensures protection against fraudulent activities not only by the borrower but also by the title provider or agent, offering a comprehensive safeguard.

Buyback Coverage for the Modern Mortgage Market

Addressing concerns in the secondary market related to marketable and tradable assets and potential related losses, Alita’s insured AOL includes a buyback coverage feature. “Our product has what we call buyback coverage. If there is a loss due to a reprice or repurchase because of a title defect, those losses are covered, as well as any ancillary losses like carry costs due to delays. This is broader than the coverage offered by traditional title insurance,” explains Stacy.

Transforming the Market: Competitive Advantage

Alita’s innovative approach is reshaping the landscape for consumers and title agents alike, offering substantial savings and a distinct competitive advantage.

Substantial Savings for Consumers

Stacy emphasized the cost-effectiveness of AOLs, particularly in states with traditionally high title insurance rates: “It is quite substantial in places like Florida, or Texas, or Pennsylvania, where you’ve got rates that are extraordinarily high compared to other parts of the country, you’re going to see a huge savings with an AOL.” By implementing a fixed cost model, Alita’s AOLs avoid the variable premiums of title insurance, which are often exacerbated by unnecessary ‘junk fees’ prevalent in the industry.

Addressing Industry Overcharges

Alex Goldovsky offered a telling anecdote from his extensive experience in the title industry, spotlighting the pervasive issue of inflated fees. Reflecting on a specific line item from a HUD1 statement—a $150 charge for a bankruptcy search that he knew could be completed in mere seconds and for a few cents —he was struck by the excessive cost. “Bankruptcy search is a basic search, right? Whether my name is there, so it takes probably a minute with a printout. You know what the answer I received? ‘Don’t worry about it. This is the way we spread the fees.’ And it was allowed,” he recounts. This practice highlights not only the substantial margins that title agents and companies often enjoy on what are essentially ministerial tasks, but also the industry’s standard approach to distributing costs, regardless of the actual service expense. Transparency in pricing automatically positions Alita’s insured AOL as a financially smarter option.

Competitive Advantage

For title agents and lenders, AOLPro present an opportunity for differentiation in a competitive market. Stacy explains how insured AOLs empower a competitive edge: “That is what it was designed for- to allow lenders and title agents to add another product to their offering. It gives them something to differentiate themselves and bring in new clients.” By integrating insured AOLs into their offerings, title agents and lenders can attract more business, especially from those who have grown weary of the high-cost title insurance model.

A Market in Transition

The growing demand for more affordable and transparent solutions in real estate transactions is creating a shift in the industry, a shift that Alita is well-positioned to lead. Alex notes the industry’s receptiveness to change: “At least three major lenders that are using title policies are all looking at AOLs… They’re not telling their title agents, they’re not telling underwriters. But they are looking at the edge of the market.” This interest from major players signifies a potential paradigm shift towards more cost-effective and efficient title confirmation methods.

Nationwide Attorney Network: Enhancing Efficiency and Integrity

Alita Group’s nationwide network of attorneys plays a crucial role in the issuance of modern insured AOLs, ensuring that each opinion is backed by independent, expert legal review.

The integrity of the insured attorney opinion letter is maintained through the use of independent attorneys, which mitigates potential conflicts of interest that can arise when attorneys are employed directly by lenders.

By leveraging a nationwide network, Alita also provides consistency across different states without the significant overhead associated with employing in-house attorneys. This model is not only cost-effective but also ensures that the legal expertise is tailored to the specific needs of each state. Alex Goldovsky supports this model, noting the economic efficiency: “If you’re hiring an attorney and the attorney is a very costly resource, you’d better keep them busy. For mid-size and small-size lenders, I think it’s a no-brainer to use the third party.“

The network allows for a collaborative approach among attorneys, which is beneficial in addressing complex title issues that may arise. Stacy explains: “If you come across a curative issue or something that needs to be addressed, in a model where you employ the attorneys, you really have one attorney that can speak to it. With a nationwide network, we’ve got people that can collaborate to figure these things out. So it gives you that benefit without the FTE cost.“

The curative services provided by this network are crucial in resolving title defects efficiently before they escalate into costly claims. Stacy elaborates on the capabilities of their network: “We’ve got a couple of different options. In some cases, the licensed provider like ProTitleUSA would provide the curative work or work together with our attorneys to figure that out.“

Streamlined Closing Timelines with AOLPro™

Alita has optimized timelines surrounding the issuance of insured AOLs, as well as the associated claims process, to enhance the efficiency and transparency of closing real estate transactions.

Integration into the Closing Timeline

Stacy clarifies the question of “gap coverage” and outlines the swift nature of AOL issuance, “Our underwriters insure up through recording. However, they don’t require us to wait until recording to issue the AOL. it is typically issued within a day of the closing.” This expedited process ensures that AOLs are issued promptly post-closing, saving the resources and time typically required to obtain a title insurance policy.

Claims Process and Insurance Structure

Discussing the claims process, Stacy explains, “Every time an AOL is issued, it will have a certificate of insurance attached that will provide the insurance underwriter’s name, policy number, effective date, and a claims contact.” Clients have the option to initiate claims either through a broker or directly with the underwriter, providing flexibility and direct access to support. Moreover, Alita’s AOL insurance covers the service provider, the mortgagee, and the mortgagor, ensuring a broad duty to defend for all parties involved. This comprehensive coverage addresses potential conflicts and streamlines resolutions, “Not only is the attorney’s work insured, but the service provider, the mortgagee, and the mortgagor are all insured under the policy.“

Ensuring Diligence and Compliance

Stacy explains that AOLs undergo a thorough review process similar to traditional title policies, “We’re pulling the same property information. It’s being put into the title production system in the same way. And then it is mapped over into Alita’s system to produce the AOL. The checklists are embedded in the system and both the title provider and the attorney go through a question and answer process to verify that all the information is correct.“

Expansive Applications: Strategic Use Cases of Insured Attorney Opinion Letters

Attorney Opinion Letters (AOLs) offered by Alita Group are proving to be a versatile and efficient solution in various segments of the mortgage and real estate markets, from refinancing to home equity lines of credit (HELOCs).

Refinancing: The Low-Hanging Fruit 

Refinancing represents a clear and immediate application for AOLs, often seen as the “low hanging fruit” due to the relatively lower risk compared to first mortgages. Stacy Mestayer emphasizes this point, “Refi’s are a low hanging fruit when it comes to this alternative. That’s always been our perspective.” This segment benefits significantly from the streamlined process and reduced costs associated with AOLs, making them an attractive option for borrowers looking to refinance.

Home Equity Lines of Credit (HELOCs) and Second Loans

Alex Goldovsky raised an interesting point about the use of AOLs for HELOCs and second liens, which are often perceived as higher-risk investments by lenders and investors. He suggests, “Do you see a use case for HELOCs and second loans? Because that’s also a low-risk product where the rating agency gives a very high risk to the product anyway. Investors are investing with the knowledge that they might lose everything. Why not use AOLs there for the insurance wrapper or AOL insurance side to make them feel better about the product and just to know that any issues or title issues will be covered. It’s very similar to a refi, don’t you think?” 

Stacy agreed, emphasizing the cost benefits, “Absolutely. If the mindset going into it is that I may lose everything on this loan and I’m willing to do that, why not save yourself the couple thousand bucks that you’re going to put out for a title insurance policy and use a product that still provides coverage, but that’s at a much lower price point.” 

Closing Thoughts: The Transformative Potential of Insured AOLs

As the discussion with Stacy Mestayer unfolded, the transformative potential of Attorney Opinion Letters (AOLs) became increasingly apparent.

Rating Agencies

A significant milestone for AOLs is gaining acceptance by rating agencies, which is crucial for securitization processes. Stacy revealed that Alita expects to receive a rating agency acknowledgement soon, which would bolster the credibility and acceptance of insured AOLs across financial markets, reassuring stakeholders of their reliability and compliance.

Exploring New Applications: Mortgage Modifications

Looking ahead, AOLs are set to expand into new areas, including mortgage modifications. This expansion signifies Alita Group’s commitment to adapting and scaling AOLs to meet diverse market needs, potentially replacing traditional mortgage modification policies with more efficient and cost-effective alternatives.

Future Roadblocks and the Path Forward

As the conversation concluded, the focus shifted to the future. The journey of changing an industry entrenched in traditional practices is likened to “pushing a boulder uphill.” Yet, Stacy and Alex both agreed that with persistent effort and growing industry support, significant progress is being made.

Take Action: Discover the Benefits of Attorney Opinion Letters

Take a deeper dive into the world of modern title alternatives by watching the full podcast with Stacy Mestayer and Alex Goldovsky, and gain insight into how AOLs are reshaping the industry. 

If you’re interested in exploring the potential of AOLs, contact our team directly.