OGC Opinion No. 01-10-02

The Office of General Counsel released the following casual opinion 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 lending institution or its attorney require a customer to buy title insurance from a specific title company, 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) prohibits banks, trust business, savings banks, savings and loan associations and nationwide banks from needing a customer to acquire title insurance, from a particular title agent or insurance provider as a condition to, amongst other things, securing a mortgage commitment. While N. Y. Ins. Law § 2502(a)( 2) (McKinney 2000) does not specifically deal with other mortgage lending institutions or their attorneys, N.Y. Banking Law § 595-a( 4) (2001) forbids a mortgage banker or a mortgage broker from requiring a debtor to purchase title insurance coverage from a specific title company, company or agent as a condition for securing a mortgage commitment.

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

Facts:

The inquirer looks for information of the Department’s viewpoint dated June 22, 2001 regarding whether N.Y. Ins. Law § 2502(a)( 2) (McKinney 2000) prohibits a lender from requiring a customer to acquire title insurance coverage from a particular title business as a condition for protecting a mortgage dedication. In addition, the inquirer concerns 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 companies, savings banks, cost savings and loan associations, and national banks shall not extend credit, lease or offer residential or commercial property of any kind, or furnish any services, or repair or vary the consideration for any of the foregoing, on the condition or requirement that the consumer get from the bank, trust business, savings bank, cost savings and loan association, or nationwide bank, its affiliate or subsidiary, or a specific insurer, representative or broker, offered, however, that this prohibition will not prevent any bank, trust company or nationwide bank from participating in any activity described in this neighborhood that would not breach 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 shall not avoid a bank, trust business, cost savings bank, savings and loan association, or nationwide bank from notifying a customer that insurance coverage is required in order to acquire a loan or credit, that loan or credit approval is contingent upon the customer’s procurement of acceptable insurance coverage, or that insurance is available from the bank, trust business, cost savings bank, savings and loan association, or national bank