AOL EXPLAINER

If you have attended an Executive Committee meeting, the NYSLTA annual convention or an ALTA event in the past few years, you will have heard reference to AOLs (Attorney Opinion Letters). In New York State, an AOL is an unregulated insurance product.

AOLs are currently being promoted to provide significant cost saving to consumers, especially low- and middle-income buyers. It appears that a coordinated disinformation campaign is underway as seen by recent articles in the Wall Street Journal, the New York Post, Business Insider and The Daily Mail. 

In addition to marketing activity, federal and multi-state lobbying to promote greater use of AOLs is actively seeking to overturn regulations that have protected consumers for more than 100 years.  In fact, title insurance was introduced to fix the deficiencies of attorney opinion letters.

The New York State Land Title Association is concerned about the spread of AOLs driven by incomplete and misleading information that threatens consumers and distorts the value produced by the title industry. First-time home buyers and people who are financially unsophisticated are especially vulnerable.

This email sets out the following objectives

• What is an AOL?
• Why do you care?
• Does an AOL indemnify the homeowner?
• What are the differences between an AOL and a lenders title insurance policy?
• What can title professionals do?

You will also find attachments that provide details about this unregulated alternative to title insurance.

What is an AOL?

An AOL is a legal opinion prepared by an attorney that provides their professional determination of the status of title to a property and, when delivered to a lender, the priority of the mortgage lien.

Why do you care?

If your business is selling title insurance, AOLs are a low-cost alternative to the lender’s policy. If you are an attorney representing a purchaser, your client will have no protection or indemnification for any issues in the chain of title, such as liens, unpaid taxes, unsatisfied mortgages, as well as issues such as adverse possession, recording errors and challenges to your ownership of title.

Does an AOL indemnify the homeowner?

No, it does not.

These products lack transparency and basic consumer protections provided by state insurance regulation, creating risk to buyers. Providers of attorney opinion letters have no statutory reserving requirements to protect against losses.

What are the differences between an AOL and a lenders title insurance policy?

An AOL does not include defense of challenges.  Sole recourse is legal claim against attorney for negligent misrepresentation or potential breach of contract, which may be time constrained by the three-year statute of limitations [CPLR 214(6)].

You can find a detailed list of the many things not covered by an AOLs in the attachments.  A partial list includes the following elements not covered by AOLs: fraud; forgery; duress; incapacity; impersonation; improper execution of documents; priority over mechanics liens; back-chain creditors’ rights.

What can title professionals do?

1. Familiarize yourself and your colleagues with complete product knowledge about this alternative to the policies that you provide. ALTA has a wealth of good information about AOLs.
2. Help educate the attorneys that you work about the complete details of AOLs
3. Stay attuned to the markets that you serve and contact RGT@NYSLTA.ORG about any marketing or promotional activity that presents AOLs as “better than title insurance” or as a product that will “save consumers money”.
4. Follow NYSLTA and ALTA alerts. Contact NYSLTA about enrolling in the Title Action Network (TAN).

https://www.thestockdork.com/title-insurance/

Understanding Title Insurance: Protecting Your Property Ownership

• By Caryl V
• Dec 28, 2023

When it comes to purchasing a property, ensuring that you have clear and undisputed ownership is crucial. 

This is where title insurance plays a vital role. In this comprehensive guide, we will delve into the world of title insurance, unraveling its importance, and demystifying the process.

What Is Title Insurance?

Title insurance is a type of insurance that protects property owners and lenders against financial loss resulting from defects or issues with a property’s title. 

These defects can include liens, encumbrances, errors in public records, legal disputes, or prior claims on the property. It provides peace of mind by ensuring that the property’s ownership is clear and free from potential risks or challenges.

Title insurance is different from other forms of insurance as it focuses on protecting against past events or claims that occurred before the policy was issued. 

It provides coverage against known and unknown issues that could arise from the property’s historical ownership records.

Types of Title Insurance Policies

There are two main types of title insurance policies: owner’s title insurance and lender’s title insurance.

Owner’s Title Insurance:

The owner’s title insurance policy protects the property owner for as long as they own the property. It provides coverage against defects that may arise in the property’s title history, including errors in public records, undisclosed heirs, forged deeds, or mistakes made during the title search process. This policy is typically purchased by the buyer during the property purchase transaction.

Lender’s Title Insurance:

The lender’s title insurance policy protects the lender’s investment in the property. When a property is financed through a mortgage, the lender typically requires a lender’s title insurance policy to protect their interests in case of title defects or challenges. This policy is usually paid for by the borrower as part of the closing costs.

Coverage and Benefits of Title Insurance

One of the primary benefits of title insurance is its ability to provide protection against financial loss resulting from title defects. Here are the key coverage and benefits of title insurance:

Protection against Financial Loss:

Title insurance protects against financial loss or expenses incurred as a result of a covered title defect. If a claim is made against your property’s title, the title insurance company will compensate you for the covered losses, including legal expenses incurred while defending your ownership rights. This coverage can save you from significant financial burdens and potential litigation costs.

Coverage for Legal Expenses:

Title insurance also includes coverage for legal expenses that may arise from defending your ownership rights. 

If someone challenges your ownership or files a claim against the property’s title, the title insurance company will bear the legal costs associated with resolving the issue. 

This coverage can help minimize the financial impact of legal disputes.

Ensuring Clear Property Ownership:

Title insurance provides assurance that your property ownership is clear and marketable. 

In the event of a title defect that threatens your ownership rights, the title insurance policy will cover the costs of resolving the issue, allowing you to maintain your ownership without incurring additional expenses.

Coverage for Risks and Challenges:

Title insurance safeguards against a range of potential risks and challenges, including but not limited to boundary disputes, unpaid liens, undisclosed easements, restrictions on property use, or errors in public records. 

These risks can pose significant threats to property ownership and can result in costly legal battles. Title insurance provides coverage and financial protection against these potential challenges.

Peace of Mind for Property Owners:

By obtaining title insurance, property owners can have peace of mind knowing that their investment is protected. 

Title insurance can help you avoid the stress and financial burden that can arise from unforeseen title defects, giving you confidence in your property ownership.

Common Title Issues and Risks

Boundary disputes, liens, and undisclosed heirs are among the common title issues that title insurance protects against. 

Boundary disputes can arise when neighboring properties have disagreements regarding their property lines. Liens and encumbrances, such as unpaid taxes or mortgages, can also pose a risk to the title. 

Additionally, undisclosed heirs or claims from previous owners can surface, challenging your ownership rights.

Obtaining Title Insurance

To obtain title insurance, you will typically work with a title company. During the closing process, the title company will conduct a title search, examining public records and uncovering any potential issues or defects. 

The cost of title insurance is a one-time premium paid at closing, based on the property’s purchase price.

Frequently Asked Questions

Who pays for title insurance?

The party responsible for paying title insurance varies depending on the state and local practices. In some cases, the buyer pays for both the owner’s and lender’s title insurance policies, while in other cases, the seller may cover a portion or all of the expenses.

Is title insurance a waste of money?

While title insurance is not legally required in every state, it provides essential protection for property owners. Without title insurance, you may bear the financial burden of defending your ownership rights or correcting title defects, which can be costly.

What is title insurance used for in real estate?

Title insurance in real estate provides protection against potential defects or issues with the property’s ownership history. It ensures that you have clear and marketable title, safeguarding your investment and ownership rights.

Can you provide examples of title insurance claims?

Title insurance claims can arise from various situations, such as a previously undisclosed heir challenging your ownership, a lienholder asserting their rights to the property, or a forged signature on a previous deed. In each case, title insurance would provide coverage and protect your investment.

Conclusion

In conclusion, title insurance is a crucial component of the property purchasing process. It offers financial protection and ensures clear ownership, safeguarding your investment in real estate. 

By understanding the importance and benefits of title insurance, you can make informed decisions and protect your property ownership rights. 

When purchasing a property, remember to include title insurance in your plans, and work with a reputable title company to ensure a smooth and secure transaction.

CORPORATE TRANSPARENCY ACT GOING INTO EFFECT JANUARY 1, 2024

NEW YORK - Starting on January 1, 2024, the Corporate Transparency Act (“CTA” or “Act”) legislation will go into effect and impact a wide range of corporations. Most significantly, the CTA introduces beneficial ownership reporting requirements for new and existing companies. The Act’s new reporting requirement or beneficial ownership information (BOI) refers to identifying information about certain individuals directly or indirectly owning or controlling a corporate entity.

The CTA reporting requirements will apply to corporations, limited liability companies, and other entities that fall within the Act’s definition of a “reporting company”. According to the CTA, reporting companies will fall into two categories: (1) domestic reporting companies and (2) foreign reporting companies.

Domestic reporting companies: These will include corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
Foreign reporting companies: include entities (inclusive of corporations and limited liability companies) formed under the laws of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

The beneficial ownership information will be collected and accessed through the Financial Crimes Enforcement Network (FinCEN), a branch of the U.S. Department of the Treasury. By way of background, the CTA was passed originally passed in 2021 by Congress on a bipartisan basis. This act is a part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. BOI will be stored in a secure, non-public database using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level. FinCEN will permit access to BOI to Federal, State, local, and Tribal officials on a bipartisan basis, and will work closely with those authorized to access BOI to ensure they understand their roles and responsibilities. The use of such information will be solely for authorized purposes, security, and confidentiality for assisting FinCEN.

Nevertheless, a reporting company created or registered to do business before January 1, 2024 will have one year, or until January 1, 2025 to file its initial beneficial ownership information report. While a reporting company created or registered on or after January 1, 2024 will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Registration will be available through an electronic secure filing system via FinCEN’s website.
While this system is currently being developed, it will be available before reports are to be filed.

There will be no cost or fee associated with registration to FinCEN.

Reportable information includes:

- The full legal name and any trade name or “doing business as” name of the Reporting Company;

- A complete current address;

- The State, Tribal, or foreign jurisdiction of formation or registration of the Reporting Company; and

- The IRS Taxpayer Identification Number (including Employer Identification Number)

For more information and answers to FAQs, visit FinCEN’s site at https://www.fincen.gov/

________________________________________________________________

The information above was provided by Brian Berlandi, Esq. 646-878-6166 or bberlandi@bnrllp.com

Used with permission.

This article is reprinted from The Title Insurance Law Journal, by permission.

Munden v. Stewart Title Guar. Co., ___ F.Supp.3d ___, 2023 WL 4902006 (D. Idaho 2023) (permanent citation not yet available).

An Idaho court has held that a title insurer is not required to pay expenses incurred by the insured in operating its cattle ranch, especially those caused by an ordinance adopted after the policy date. The court also held that the insureds' marketability of title claim was stayed until ownership of the disputed road is resolved in a separate action, and addressed several litigation defense cost issues.

Prior decisions in this lawsuit were reported in the May 2020 and October 2021 issues.

In 2006, Bannock County, Idaho passed Ordinance 2006-1, which designated several roads and trails as part of the Scout Mountain Loop snowmobile trail. This included the Upper Garden Creek Road. In winter, the only traffic allowed on the road was by snowmobile.

In 2012, Dennis and Sherrilyn Munden bought 768 acres lying North of Upper Garden Creek Road. The nearest all-weather public road is a mile away. The Mundens got a Stewart Title policy that contained exceptions for unrecorded easements and for any public road running through the property.

In 2014, the Mundens bought the 660 acres South of the road. They got a Chicago Title policy. That policy had an unrecorded easement exception, but not a public road exception. The South parcel gets access from both Upper Garden Creek Road and a different street.

The Mundens operate a cattle ranch on the combined parcels. In 2019, they sued the county in state court over the snowmobile trail ordinance, because it prohibits them from hauling ranch supplies and equipment over Upper Garden Creek Road in winter. Bannock County filed counterclaims, alleging that Garden Creek is a public road. The state court lawsuit has made a trip to the state Supreme Court, in 504 P.3d 354 (Idaho 2022), but is still pending.
Also, in early 2019, Bannock County amended its ordinance to say that the snowmobile trails (including Upper Garden Creek Road) would be closed at the discretion of the county public works director, not for the fixed period of Dec. 15 to April 15 each year.

The Mundens made claims under both policies for attorney fees in the ordinance lawsuit and their expenses in adjusting their cattle operations. They also claimed that the title to both tracts was unmarketable. The Ninth Circuit held that the public road exception in the Stewart policy negated coverage for all of those claims. However, the court found that the unrecorded easement exception in the Chicago Title policy did not negate coverage. Munden v. Stewart Title Guar. Co., 8 F.4th 1040 (9th Cir. 2021).

After the Ninth Circuit decision, Chicago Title accepted coverage. It paid the Mundens about $135,000 in attorney fees incurred in the state court action, and in prosecuting the coverage action. It also paid them $4,000 as the diminution in value, based on an appraisal.

Both sides moved for summary judgment. Chicago Title argued that it had fulfilled all of its policy duties. The Mundens claimed that the insurer owed more attorney fees and that the diminution was greater, because title to the South parcel is "clouded" by the county's claim that the road is public.

The court deferred a ruling on the Munden claim that title was clouded until the state court decides whether or not the road is public.

The judge said:
If the Upper Garden Creek Road is privately owned by the Mundens, no cloud on title exists, rendering any compensation for the "defect of title" inappropriate. Alternatively, if Upper Garden Creek Road is a public road owned by Bannock County, then this Court can determine whether the compensation paid by Chicago Title based on the diminution of value appraisal fulfilled Chicago Title's contractual obligation under the Policy.

Next, the court addressed attorneys' fees. The court agreed with Chicago Title that it was not required to pay the fees the Mundens incurred in prosecuting their state court action before the county brought counterclaims asserting that the road was public. It reasoned that the policy creates only an obligation to defend the insured in litigation. It said:

Here, because the Mundens initiated the state case against Bannock County, it was only when Bannock County filed a counterclaim that Chicago Title's duty to defend was triggered. Any fees incurred before Chicago Title's duty to defend was triggered are not covered under the Policy.

Chicago Title next argued that it had no duty to pay fees incurred on appeal in either the state court action or the coverage suit, because Condition 5(c) of this 2006 form ALTA policy says that the insurer may elect to appeal an adverse ruling "in its sole discretion." The court admitted that the plain language of the policy seemed to favor Chicago Title. However, the court said, Chicago Title did not defend the Mundens in the state action until the Ninth Circuit ruled. The Mundens appealed the action against the county before that ruling. The court said that the policy "does not contemplate this circumstance or circuitous timing, and therefore, there is an ambiguity" that it was required to resolve in the Mundens' favor.

The court also said that Condition 5(c) might not apply at all:
Alternatively, because Chicago Title did not bring the action or assert a defense on the Mundens' behalf, it could be found that Condition 5(c) does not apply at all, and Chicago Title did not have the sole discretion to appeal. If Condition 5(c) does not apply, there are no other provisions permitting Chicago Title to exclude appellate fees from the Mundens' reimbursable legal fees.

The court said there was a question of fact as to the amount of attorneys' fees owed.

Finally, the court took up the Mundens' claim that the $4,000 check from Chicago Title was too little. They said that the 2019 modified ordinance forced them to spend more than $400,000 for their calving operations, for new equipment and tires, and a new place for their cattle to reside during winter. In addition, the Mundens sought about $33,000 for a calving barn that they "never used" because of the "closed road" after the passage of the 2019 ordinance.

The court said that the Mundens' claims were far afield of title issues, and were about post-policy acts. It reminded the Mundens that title insurance protects "against the defects in title which appear of record." Brown's Tie & Lumber Co. v. Chicago Title Co. of Idaho, 764 P.2d 423, 427 (Idaho 1988) (quoting 9 Appleman, Insurance Law and Practice § 5201, 8–9 (1981)). That means "easements, liens, encumbrances, and so forth." Futher, all coverage is retrospective. The policy begins by saying that it "insures, as of Date of Policy ... against loss or damage." (emphasis added).

The court said:
Conflicts involving private property rights are common, which is why property owners acquire and rely on title insurance. Title insurers are bound to pay when they miss easements, encroachments, and other claims in the public record affecting an individual's ownership. However, insurance policies only provide compensation for encumbrances and defects that existed at the time of the policy issuance. Title insurers are not bound to compensate for future, unknowable events.

Further, Brown's Tie also said that "[t]he business success is not what has been insured, only the title." Thus, the court said, insureds "should hold no expectation that title insurance will guarantee the success of how they intend to use the property." The court held that the business expenses claimed by the Mundens are not loss payable under the policy:

The limitations to business operations arising after the issuance of the Policy are outside the scope of the Policy because of subject matter and the timing. Chicago Title is not liable for any business expense losses resulting from an Ordinance passed after the Policy was issued.

The Mundens also demanded policy limits because they claim that there is a cloud that renders title unmarketable, due to the road dispute. The Mundens relied "heavily" on Jericho State Cap. Corp. of Fla. v. Chicago Title Ins. Co., 848 S.E.2d 572 (S.C. Ct. App. 2020). In that case, the South Carolina Court of Appeals held that a reservation on a county map and ordinance for the possible taking of a future right-of-way rendered title to the affected parcels unmarketable and invoked policy coverage. The Jericho court reasoned that the map made it likely that the right-of-way area would be condemned in the future, making title unmarketable.

This court distinguished Jericho, saying:
Although Jericho similarly involved an ordinance, it is inapposite because the South Carolina Ordinance specifically restricted use to ensure future acquisition, which led to the increased probability of litigation. Nothing within the 2006 or 2019 Bannock County Ordinances establishes rights for future acquisition or threatens the current ownership. The 2019-01 Ordinance only changed the time and manner of road closure and did not alter title to the property. There is nothing to suggest the 2019-01 Ordinance increased the probability of litigation. Litigation was unexpected as Bannock County believed ownership rights of the Upper Creek Garden Road were established. Additionally, there is nothing to suggest that condemnation proceedings have been initiated since the ownership question arose.
The court concluded with an admonition to the Mundens. It said that the "elephant in the room of this litigation revolves around ownership of Upper Creek Garden Road." In Idaho, the proper way to challenge the status of a road is under Idaho Code section 40-208(7). Bannock County cited that statute

in their counterclaim in 2019. The Idaho Supreme Court reiterated the "required adherence to the statute" in its 2022 decision in the state court action. This court said that nothing in the record established that the Mundens "have sought a validation proceeding, which would establish the status of the road and could potentially clear the cloud on title." Therefore, the judge said, "until the latter issue is resolved, a determination of compensation for unmarketable title is premature."

This is an excellent decision. It is one of the few to address head-on an insured's claim that loss under the policy should include post-policy business expenses incurred by the insured. The court did a good job of distinguishing between reduction in the value of the real estate due to a title matter and business expenses incurred by the insured allegedly resulting from the title issue.

Matthew R. Cleverley of Fidelity National Law Group in Seattle capably represented Chicago Title Insurance Co.
J. Bushnell Nielsen, shareholder in the law firm Reinhart’s litigation and real estate practices, is the editor of the Title and Escrow Claims Guide and The Title Insurance Law Journal. He can be reached at bnielsen@reinhartlaw.com.

The NYC Tax Map website portal has been changed and the new website is https://propertyinformationportal.nyc.gov/

The maps seem easy enough to what we had prior on the old website, but this site does offer additional information as well.