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(Created page with "<br>OGC Opinion No. 01-10-02<br><br><br>The Office of General Counsel issued the following informal opinion on October 2, 2001, representing the position of the New york city State Insurance Department.<br><br><br>Re: Conflict Between N.Y. Insurance Law § 2502(a)( 2) (McKinney 2000) and the federal Real Estate Settlement Procedures Act of 1974 (RESPA)<br><br><br>Questions Presented:<br><br><br>May a mortgage lender or its lawyer require a borrower to purchase title insu...") |
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Latest revision as of 07:29, 2 November 2025
OGC Opinion No. 01-10-02
The Office of General Counsel issued the following informal opinion on October 2, 2001, representing the position of the New york city State Insurance Department.
Re: Conflict Between N.Y. Insurance Law § 2502(a)( 2) (McKinney 2000) and the federal Real Estate Settlement Procedures Act of 1974 (RESPA)
Questions Presented:
May a mortgage lender or its lawyer require a borrower to purchase title insurance coverage from a specific title company, agent or company, as a condition for securing a mortgage commitment?
If the federal Real Estate Settlement Procedures Act of 1974 ("RESPA"), as modified, 12 U.S.C. § § 2601-2617 (West 2001) permits the above activity, is state law preempted?
Conclusions:
No. N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) prohibits banks, trust business, cost savings banks, cost savings and loan associations and nationwide banks from requiring a customer to get title insurance, from a particular title representative or insurance provider as a condition to, amongst other things, protecting a mortgage commitment. While N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) does not particularly attend to other mortgage lenders or their lawyers, N.Y. Banking Law § 595-a( 4) (2001) prohibits a mortgage banker or a mortgage broker from needing a debtor to buy title insurance coverage from a specific title business, firm or agent as a condition for protecting a mortgage dedication.
Real Estate Settlement Procedures Act of 1974, 12 U.S.C.A. § 2616 (West 2001) offers that a determination may not be made that a state law is irregular where such law offers more protection to customers. N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000), in addition to N. Y. Banking Law § 595-a( 4) (2001 ), offer higher defense to New york city consumers by enabling those customers to acquire title insurance coverage from suppliers of their option.
Facts:
The inquirer looks for explanation of the Department's viewpoint dated June 22, 2001 regarding whether N.Y. Ins. Law § 2502(a)( 2) (McKinney 2000) prohibits a lender from needing a borrower to get title insurance from a particular title business as a condition for protecting a mortgage commitment. In addition, the inquirer questions whether RESPA preempts N.Y. Ins. Law § 2502(a)( 2) (McKinney 2000).
Analysis:
N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) offers:
( 2) Banks, trust business, cost savings banks, savings and loan associations, and nationwide banks will not extend credit, lease or offer residential or commercial property of any kind, or provide any services, or fix or differ the consideration for any of the foregoing, on the condition or requirement that the client get insurance from the bank, trust company, cost savings bank, cost savings and loan association, or nationwide bank, its affiliate or subsidiary, or a particular insurer, agent or broker, supplied, however, that this prohibition will not avoid any bank, trust business or nationwide bank from engaging in any activity explained in this neighborhood that would not break Section 106 of the Bank Holding Company Act Amendments of 1970, as interpreted by the Board of Governors of the Federal Reserve System. This prohibition will not avoid a bank, trust business, cost savings bank, cost and loan association, or nationwide bank from notifying a consumer that insurance coverage is required in order to acquire a loan or credit, that loan or credit approval rests upon the client's procurement of acceptable insurance, or that insurance is offered from the bank, trust business, savings bank, cost savings and loan association, or national bank; offered, nevertheless, that the bank, trust business, cost savings bank, savings and loan association, or national bank will also inform the consumer in writing that his/her choice of insurance company will not affect the bank, trust business, savings bank, cost savings and loan association, or national bank's credit choice or credit terms in any method. Such disclosure shall be given prior to or at the time that a bank, trust business, cost savings bank, savings and loan association, national bank or individual selling insurance on the facilities thereof obtains the purchase of any insurance coverage from a consumer who has actually applied for a loan or extension of credit.
We continue to hold that pursuant to the above area, banks, trust business, savings banks, savings and loan associations, nationwide banks may not need a debtor to get insurance coverage from a particular insurance company, agent or broker, as a condition to receiving a loan. While the inquirer is right that N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) does not specifically attend to other mortgage loan providers or their lawyers, on August 29, 2001, Governor George Pataki signed into law Chapter 212 of the Laws of 2001, which added new subdivision (4) to N. Y. Banking Law § 595-a (2001) to forbid mortgage brokers, mortgage bankers and exempt companies from requiring that borrowers use a particular title insurer, title insurance firm or title insurance coverage representative as a condition for securing a mortgage dedication. That change, entitled "Restrictions On Tying" states in relevant part:
( 4 )(A) No mortgage banker, mortgage broker or exempt organization shall, as a condition for the approval of a mortgage loan, need using a particular title insurance company, title insurance coverage agency or title insurance coverage agent or, for any other type of insurance coverage, need making use of a specific insurance company, representative or broker.
(B) A bank, trust company, cost savings bank, cost savings and loan association or national bank which runs in compliance with the provisions of subdivision 8 of section fourteen-g of this chapter and paragraph two of neighborhood (A) of area 2 thousand five hundred two of the insurance coverage law will be deemed to be in compliance with this subdivision.
The federal Real Estate Settlement Procedures Act § 2607(c)( 4) (West 2001) states, in pertinent part:
(c) Nothing in this section will be interpreted as restricting ... (4) affiliated business plans so long as (A) a disclosure is made from the existence of such a plan to the person being referred and, in connection with such recommendation, such person is supplied a written price quote of the charge or range of charges usually made by the supplier to which the person is referred ... (B) such individual is not required to utilize any specific service provider of settlement services ... For functions of the preceding sentence, the following will not be thought about an offense of clause (4 )(B): (i) any arrangement that requires a buyer, borrower, or seller to spend for the services of an attorney, credit reporting firm, or property appraiser chosen by the loan provider to represent the loan provider's interest in a property deal, or (ii) any arrangement where an attorney or law office represents a client in a realty deal and problems or organizes for the issuance of a policy of title insurance in the transaction directly as representative or through a separate business title insurance coverage firm that might be established by that lawyer or law practice and ran as an accessory to his or its law practice.
While RESPA uses the broad term "lending institution" and seems to permit lenders and their attorneys to require that a debtor obtain title insurance coverage from a particular title insurance provider, our company believe there is no preemption issue between the above state laws and RESPA due to the fact that these state laws give higher defense to consumers. Specifically, Section 2616 of the Real Estate Settlement Procedures Act of 1974 (West 2001) supplies, in pertinent part, that:
This chapter does not annul, change or impact, or exempt anybody subject to the provisions of this chapter from complying with, the laws of any State with regard to settlement practices, except to the extent that those laws are irregular with any provision of this chapter, and after that only to the extent of the inconsistency. The Secretary is licensed to determine whether such inconsistencies exist. The Secretary may not determine that any State law is irregular with any provision of this chapter if the Secretary figures out that such law gives higher defense to the consumer. (focus included).
Accordingly, the Department continues to maintain the position that a loan provider might not, as a condition to protecting a mortgage dedication, need that a customer obtain title insurance coverage from a particular title insurance provider, agent or company.
For more information you may get in touch with Attorney D. Monica Marsh at the New York City Office.