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OGC Opinion No. 01-10-02


The Office of General Counsel provided the following informal viewpoint on October 2, 2001, representing the position of the New York 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 loan provider or its lawyer need a customer to acquire title insurance coverage from a particular title business, agent or company, as a condition for protecting a mortgage commitment?


If the federal Real Estate Settlement Procedures Act of 1974 ("RESPA"), as amended, 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) forbids banks, trust business, savings banks, cost savings and loan associations and nationwide banks from needing a customer to get title insurance, from a specific title representative or insurer as a condition to, to name a few things, securing a mortgage commitment. While N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) does not particularly address other mortgage lending institutions or their attorneys, N.Y. Banking Law § 595-a( 4) (2001) prohibits a mortgage banker or a mortgage broker from needing a borrower to buy title insurance from a specific title business, firm or representative as a condition for securing a mortgage dedication.


Real Estate Settlement Procedures Act of 1974, 12 U.S.C.A. § 2616 (West 2001) provides that a decision may not be made that a state law is irregular where such law provides more protection to consumers. N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000), as well as N. Y. Banking Law § 595-a( 4) (2001 ), provide higher defense to New york city customers by permitting those consumers to obtain title insurance from companies of their choice.


Facts:


The inquirer seeks clarification of the Department's viewpoint dated June 22, 2001 as to whether N.Y. Ins. Law § 2502(a)( 2) (McKinney 2000) prohibits a lending institution from requiring a debtor to get title insurance from a particular title business as a condition for securing a mortgage dedication. 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) provides:


( 2) Banks, trust companies, savings banks, savings and loan associations, and nationwide banks will not extend credit, lease or sell residential or commercial property of any kind, or furnish any services, or repair or differ the factor to consider for any of the foregoing, on the condition or requirement that the client obtain insurance from the bank, trust company, cost savings bank, savings and loan association, or national bank, its affiliate or subsidiary, or a particular insurance provider, agent or broker, provided, nevertheless, that this restriction will not prevent any bank, trust company or nationwide bank from engaging in any activity explained in this neighborhood that would not breach Section 106 of the Bank Holding Company Act Amendments of 1970, as translated by the Board of Governors of the Federal Reserve System. This restriction will not avoid a bank, trust business, cost savings bank, savings and loan association, or nationwide bank from informing a customer that insurance is required in order to get a loan or credit, that loan or credit approval is contingent upon the consumer's procurement of appropriate insurance coverage, or that insurance coverage is offered from the bank, trust business, cost savings bank, savings and loan association, or nationwide bank; provided, however, that the bank, trust business, savings bank, cost savings and loan association, or nationwide bank shall also notify the customer in writing that his or her choice of insurance supplier will not impact the bank, trust business, savings bank, cost savings and loan association, or national bank's credit choice or credit terms in any way. Such disclosure will be provided prior to or at the time that a bank, trust business, cost savings bank, savings and loan association, nationwide bank or individual selling insurance coverage on the properties thereof solicits the purchase of any insurance from a customer who has obtained a loan or extension of credit.


We continue to hold that pursuant to the above section, banks, trust business, savings banks, savings and loan associations, national banks might not require a customer to acquire insurance from a particular insurance company, agent or broker, as a condition to getting a loan. While the inquirer is correct that N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) does not particularly deal with 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 restrict mortgage brokers, mortgage bankers and exempt companies from needing that debtors use a specific title insurer, title insurance coverage agency or title insurance representative as a condition for securing a mortgage commitment. That change, entitled "Restrictions On Tying" states in appropriate part:


( 4 )(A) No mortgage lender, mortgage broker or exempt organization shall, as a condition for the approval of a mortgage loan, require the usage of a particular title insurer, title insurance coverage agency or title insurance coverage representative or, for any other kind of insurance, require making use of a particular insurance company, representative or broker.


(B) A bank, trust business, cost savings bank, cost savings and loan association or nationwide bank which operates in compliance with the arrangements of subdivision 8 of area fourteen-g of this chapter and paragraph two of subdivision (A) of area two thousand 5 hundred 2 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 area will be construed as forbiding ... (4) associated company arrangements so long as (A) a disclosure is made from the existence of such an arrangement to the person being referred and, in connection with such recommendation, such person is provided a written estimate of the charge or variety of charges typically made by the service provider to which the person is referred ... (B) such individual is not required to utilize any specific company of settlement services ... For purposes of the preceding sentence, the following will not be considered an infraction of provision (4 )(B): (i) any arrangement that needs a purchaser, borrower, or seller to spend for the services of an attorney, credit reporting company, or genuine estate appraiser chosen by the lender to represent the lending institution's interest in a genuine estate deal, or (ii) any plan where an attorney or law practice represents a customer in a real estate transaction and problems or organizes for the issuance of a policy of title insurance in the transaction straight as representative or through a separate corporate title insurance coverage firm that might be developed by that lawyer or law company and operated as an adjunct to his or its law practice.


While RESPA utilizes the broad term "lender" and appears to allow loan providers and their attorneys to require that a debtor obtain title insurance coverage from a specific title insurance company, our company believe there is no preemption issue between the above state laws and RESPA due to the fact that these state laws provide higher defense to consumers. Specifically, Section 2616 of the Real Estate Settlement Procedures Act of 1974 (West 2001) supplies, in appropriate part, that:


This chapter does not annul, alter or affect, or exempt anyone based on the arrangements of this chapter from abiding by, the laws of any State with regard to settlement practices, other than to the extent that those laws are inconsistent with any arrangement of this chapter, and then only to the level of the inconsistency. The Secretary is authorized to figure out whether such disparities exist. The Secretary might not figure out that any State law is irregular with any provision of this chapter if the Secretary figures out that such law offers greater protection to the consumer. (focus included).


Accordingly, the Department continues to preserve the position that a lending institution might not, as a condition to securing a mortgage dedication, need that a debtor acquire title insurance coverage from a particular title insurance provider, agent or firm.


For further info you may contact Attorney D. Monica Marsh at the New York City Office.