- March 09, 2005
- All Issuing Offices in New York
- NYS Insurance Law Section 6409(d)
On January 20, 2005, the Office of the
General Counsel of the New York State Insurance Department issued its latest
opinion on the interpretation of Insurance Law section 6409(d),
The situation addressed by the Department in this instance is relatively familiar. It is not uncommon for certain contracts of sale for real estate, typically newly constructed residential units, to impose a fee on the purchaser when the purchaser obtains title insurance from a company
other than the one designated by the seller. It is this situation on which the Department was asked to opine.
It is well established that the Real Estate Settlement Procedures Act (RESPA) prohibits a seller from requiring a purchaser to use a particular title insurer where the purchase is financed by a “federally related mortgage” as that term is defined by the statute. Further, in an opinion dated October 24, 2004, the Department stated that a seller, who is affiliated with a title insurer, may not reduce closing costs for purchasers who utilize the services of such insurer. In this instance however, there is no element of affiliation between seller and title insurer required to create the violation.
Ironically, while the statute was presumably intended to punish the attorney, mortgage banker/broker or real estate broker, among others, who would accept cash or other consideration in exchange for referrals, in this case, it is the prospective purchaser who may get caught in the crosshairs. The second sentence of section 6409(d) makes the recipient of the consideration liable for a penalty in the amount of the greater of $1000 or five times the amount of the kickback. As a result, a purchaser looking to avoid the imposition of the additional fee by using the suggested title insurer potentially ends up making himself subject to a penalty, which, in most cases, would be far in excess of the threatened additional fee.
Be that as it may, clearly it is the opinion of the Department that under the facts recited in the attached letter, that the seller in this instance acts “for or on behalf of” the title insurance company and as result, a violation of section 6409(d) has taken place. Therefore, all issuing offices are required to take appropriate action to avoid this scenario and further, when made aware of circumstances where it exists, to take all necessary steps to ensure that they no longer knowingly participate in such arrangements.
 Please refer to the attached copy of the letter authored by Monica Marsh, Esq. of the NY State Insurance Department for the text of the contract provision under consideration.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.