By Jeremy Yohe

Title insurance is unique among insurance products. Unlike other forms of coverage, where the risk arises after the policy is issued, most title insurance claims stem from events that occurred before the policy’s issuance. This retrospective nature means title professionals devote significant time and resources upfront to minimize risk, making title insurance a fundamentally preventive product.

Proactive Protection for Lenders

Title professionals specialize in uncovering and resolving potential issues in a property’s history—issues that could jeopardize a lender’s lien position or a buyer’s ownership rights. This intensive curative work is where most of the title insurance premium goes, rather than toward claims, as is common in other insurance lines.

According to a 2024 study by ndp | analytics, title professionals spend about 22 hours on a standard transaction and up to 45 hours on complex cases. These aren’t isolated events—36% of 2023 transactions fell into the more “difficult” category. The study quantifies how much time and expertise is required to clear title defects and secure real property rights.

“The preventative work done by the title industry is why title insurance has a lower claims rate versus other lines of insurance,” said Chris Morton, ALTA’s chief executive officer. “Title insurance assures the lender of the validity, priority and enforceability of its lien– serving as protection for the lender’s security interest in the property.”

A High-Value, Lower-Claim Model

The expense ratio for title insurance has averaged 95% over the past decade, per the National Association of Insurance Commissioners. This reflects the significant investment in staff time and access to public records, of which only 70% of public records are digitized—and often just the past 10–15 years are available online. Roughly 70 cents of every dollar in revenue supports underwriting and research costs.

Despite inflation, the industry’s investment in technology has helped lead to a 5% decrease in the cost of title insurance coverage over the past five years.

Curative work is increasing in complexity and cost. In 2023:

  • 62% of title companies performed at least four curative actions per transaction.
  • 64% said curative costs had increased.
  • Over half reported increases in compliance burden and transaction complexity.

“While the use of technology to research title issues has dramatically increased, it takes more than a click of a button to ensure clear title,” said Richard Welshons, ALTA’s president and Twin Cities Manager for The Title Team and DCA Title. “The amount of research and corrective action from expert title professionals needed to provide lenders and homeowners with assurance about their title remains significant.”

Title Insurance vs. Unregulated Alternatives

Despite title insurance’s value in providing certainty in the real estate and mortgage lending markets, the Government Sponsored Enterprises (Fannie Mae and Freddie Mac) have been experimenting with products that inherently provide less protection than title insurance under the guise of saving closing costs for consumers. In 2024, the Federal Housing Finance Agency (FHFA) approved a pilot program that allows for the waiver of the requirement for lender’s title insurance on certain refinances with loan-to-value ratios less than 80 percent.

It was recently announced that Westcor Land Title Insurance Co. is partnering with X1 Analytics and Mortgage Connect LP to participate in the FHFA pilot. According to Westcor, this initiative is distinct in including a title insurance-backed product. The initial rollout of the pilot did not include this component. According to Westcor, this approach ensures that both lenders and borrowers are protected, the company said in a release.

In addition to the pilot, Fannie Mae and Freddie Mac are accepting the use of other alternative title insurance products, including certain attorney opinion letters (AOLs) in place of title insurance in limited circumstances on purchases and refinances. AOLs are formal legal documents that provide an attorney’s professional opinion on the status of a property’s title and its marketability. When issuing an AOL, a preliminary title report is typically pulled. While it may outline potential issues, However, AOLs do not inherently cure defects in the public land records. And they don’t cover unknowable risks or items that cannot be discovered through a diligent public records search. This includes fraud and forgery in the chain of title, unrecorded liens like recent mechanics liens, lower dollar tax liens, liens of delinquent HOA dues and heirs or probate issues.

There are two main limitations for the use of AOLs on loans purchased by the Government Sponsored Enterprises (GSEs). First, and most limiting, is the requirement that an AOL be “commonly acceptable in lieu of title insurance by private institutional mortgage investors in the area where the subject property is located.” Second, there are a number of ineligible property types that are common in real estate transactions such as co-op share loans and loans secured by a manufactured home. AOLs are also not permitted to be used for Texas Section 50(a)(6) loans, community land trust mortgages, loans executed using a power of attorney, or HomeStyle Energy and HomeStyle Renovation Loans.

According to Fannie Mae’s analysis of Uniform Closing Data, the median cost of title insurance plus settlement charges is 0.67% of the purchase price. Meanwhile, the cost of AOLs varies widely. Lenders should look beyond the sticker price of the AOL and examine all potentially regulated and unregulated fees to verify the reality of any advertised cost savings. In states such as California where it’s common for the seller to pay for the owner’s title insurance policy, it makes little sense to use an AOL since they will likely be more expensive than the simultaneous issue rate for a loan policy.

Real Economic Risk: $600–$900 Billion

Recent analysis released by First American Financial Corp. found that the role of title professionals in maintaining reliable and accurate property ownership records dramatically reduces estimated risk exposure in real estate transactions.

The white paper written by First American Chief Economist Mark Fleming, “What is the Risk of Not Curating Property Ownership Records?” estimates that the title insurance industry’s work to maintain accurate and reliable property records mitigates $600 to $900 billion in risk exposure to lenders, homebuyers and other participants in real estate transactions. The curative work conducted by the U.S. title insurance industry, which includes aggregating and organizing disparate sources of data affecting real property, identifying and remediating risks, and helping resolve errors in the public record, is necessary to trade property rights clearly and reliably in a real estate transaction.

“The U.S. residential real estate market accounts for a significant share of the total economy, but it relies on a public good—reliable, accurate real property records—that the title insurance industry plays a critical, but largely misunderstood, role in maintaining. It is the industry’s efforts to mitigate title risk exposure that maintains the reliability and accuracy of property ownership records underpinning the real estate economy,” Fleming said. “When the price of maintaining a smooth-functioning real estate economy is just pennies on the risk-dollar, do we really want to jeopardize that and risk diminishing the economic benefits it provides?”

Why It Matters to Lenders

Title insurance doesn’t just secure ownership—it protects lenders from litigation. It covers legal defense costs and claims arising from undiscovered liens, unpaid taxes or even fraud. Unregulated alternatives do not provide lenders this protection.

By accepting an AOL in lieu of a title policy, lenders are taking on greater risk, and lending would become much riskier if AOLs were widely adopted. Like the pilot, AOLs expose lenders to increased risk. Let’s say a homeowner has an undisclosed tax, sewer or nuisance abatement lien. If that lien is not uncovered, the lender would be covered by a Loan Policy of title insurance, but not an AOL. Similarly, let’s say a homeowner had an undisclosed child or spousal support lien. An AOL would not cover the homeowner or lender.

Another critical gap is in closing protection coverage. A closing protection letter is critical to giving assurance to a lender that their funds are secure, and instructions will be followed. This coverage is not available with an alternative since most states limit the issuance of those letters to title insurers.

Lenders would also have to jump through several complicated hoops to make a claim. Most onerous of all is waiting for a foreclosure to be completed, and for the property to be sold to a disinterested third party. With a title policy, the claim can be made and paid whenever the issue is discovered, including well before a default or foreclosure.

Historically, the need for title insurance arose because traditional methods of title assurance, specifically AOLs did not provide adequate protection. With the development and growth of a secondary market for mortgages, title insurance became the industry standard because it provided more certainty.

Lenders considering using AOL products should consult with counsel to determine the additional risks they present to their business. As lenders consider programs to help with housing equity and affordability, they should reach out to their title insurance partners to learn about different programs they have developed.

“Since the creation of title insurance in the late 19th century, title insurance has provided lenders with reassurance that their investments in mortgages are secure” Morton said. “Title policies guaranty lenders’ lien priority. As a lender, having confidence in the security of their investments is critical. Risk should be managed effectively and minimized whenever possible. Title insurance helps lenders manage and reduce their risk.”

Significant Claims Happen—and Title Insurance Is the Backstop

Title insurance claims still occur despite all the curative efforts. According to independent analysis conducted by global consulting and actuarial firm Milliman, the title industry reported payments of $596 million during 2022 related to insurance claims. This is due in large part to issues such as fraud, forgery, undisclosed heirs and errors in the public record that cannot be discovered and resolved before a title insurance policy is issued. Also, despite the loss elimination process, disputes or issues may still arise after the policy is issued.

The study examined over 127,000 claims associated with policies issued between 2013 and 2022, identifying key sources of title insurance claim costs throughout the decade.

The largest losses in title insurance are due to fraud and forgery, which cannot be easily identified through a simple search of public records. Fraud and forgery claims represent 21% of the total dollars spent by title insurers on claims expense and losses, with an average claim cost of over $143,000, the research showed. All other claims cost an average of over $26,000.

Including fraud and forgery, the analysis found nearly 30% of title insurers’ losses and claims expenses arose from title problems not discoverable from a public records search.

“Expert title professionals do much more than just scan public records to secure property rights,” Morton said. “With the cost of fraud and forgery claims averaging more than twice the national average salary in the U.S., the risk of not purchasing a title insurance policy is far too high. This analysis highlights the significant risk exposure presented by any elimination of title insurance policies on loans purchased by the government-sponsored enterprises or from any unregulated alternative product that does not provide comprehensive coverage, particularly against nearly a third of all claims. Title insurance remains the fundamental safeguard for lenders, protecting them from financial losses and legal complications associated with title defects. ALTA believes every loan made and purchased should be backed by title insurance issued by a state-regulated title insurer.”

Jeremy Yohe is ALTA’s vice president of communications. He can be reached at jyohe@alta.org.