Attorney Opinion Letters (or AOLs) are formal documents in which a licensed attorney states their legal judgement on a transaction or question. As some major financial institutions begin accepting these documents in lieu of Title Insurance, it’s important to understand the risks buyers and sellers take by making that choice.
Do TN and KY Accept Attorney Opinion Letters?
Here’s where Tennessee and Kentucky Title Law stand re: AOLs:
Tennessee does not outright ban attorney opinion letters (AOLs), but the Tennessee Department of Commerce and Insurance (TDCI) clarified here that AOLs can’t legally act as an unregulated substitute for traditional title insurance
Kentucky accepts AOLs for certain real estate transactions, but it’s heavily dependent on lender approval.
Why Do People Use AOLs in Place of Title Insurance?
The short answer: cost savings. Providing an Attorney Opinion Letter can reduce upfront closing expenses compared to buying separate owner and lender title insurance. While that sounds appealing, there are risks. Namely, AOLs can’t be used in lieu of Title Insurance on all property types, and the exact provisions and protections, should issues arise in the future, are unclear.
What’s the Difference Between Title Insurance and AOLs?
The difference between these documents comes down to the scope of protection. Title insurance protects against a range of potential issues, including:
Matters that were not discoverable in a search of public records
Title disputes: If a defense is needed, Title Insurance covers these legal costs
Because it’s highly regulated, Title Insurance has strict oversight to ensure pricing and implementation isn’t unfair, discriminatory, or inadequate.
AOLs provide a legal analysis of public records up to the title search date and cover public record defects. However, they usually exclude hidden and/or undiscoverable risks, like post-closing fraud, forgery, missing heirs, or mis-indexed documents (unless these documents are backed by specific supplemental insurance).
Stay Protected and Informed
Initial cost savings would be ideal, if there was a firm, clear expectation of protection. But an Attorney Opinion Letter is unlikely to keep your real estate transaction on track if fraud, disputes, or other issues arise. Don’t take chances. Contact a trusted Kentucky and Tennessee Title Attorney to learn the benefits of title insurance. Have questions about buying, selling, and how to reduce real estate risk? We can help. Book a consultation` with BNT Escrow today.
