The Office of General Counsel issued the following informal opinion on December 18, 2001, representing the position of the New York State Insurance Department.
Re: Title Insurance Reverse Mortgage
What is the correct coverage amount for a title insurance policy issued to a mortgagee of a Reverse Mortgage?
A title insurance policy issued to a mortgagee of a Reverse Mortgage may not be written for an amount less that the greater of (1) the fair market value of the insured premises at the time of the mortgage is made, or (2) the maximum amount of principal as stated in the mortgage.
The inquirer represents a lender who makes "Reverse Mortgage" loans. At a recent closing, the inquirer disputed the title companys position that the title insurance policy should cover the amount of the mortgage, and not the maximum claim amount (i.e., the property value amount).
The subject of title insurance is covered in Article 64 of the New York Insurance Law. Although no section of the Insurance Law specifically answers the question raised, the issue is addressed in the rate manual filed by title insurers. Under N.Y. Ins. Law § 6409(b) (McKinney 2000), once the manual is filed with the superintendent, the insurers are required to conform to its provisions. That section provides, in pertinent part, as follows:
(b) Every title insurance corporation shall file with the superintendent its rate manual, if any, its basic schedule of rates and classification of risks, its rating plan and rules in connection with the writing or issuance of policies of title insurance and shall thereafter likewise file any changes therein. After any such filing no such corporation shall, in connection with the writing or issuance of any such policy, deviate from the rates, classifications of risks and rules last filed by it
N.Y. Ins. Law § 6409(b) (McKinney 2000).
At present, title insurers in New York State do not file their own rate manuals. Rather, the rate manual filed by the Title Insurance Rate Service Association ("TIRSA") applies to policies issued by its member insurers. Section 6(C) thereof specifically addresses the issue raised. That section provides as follows:
A mortgage policy of title insurance insuring a Reverse Mortgage (as defined in Sections 280 and 280-a of the Real Property Law) may not be issued in an amount less than the greater of (1) the fair market value of the insured premises at the time the mortgage is made, or (2) the maximum amount of principal as stated in the mortgage.
TIRSA Rate Manual (2nd Reprint, 1997).
In light of the above, any policy of title insurance in favor of the mortgagee of a Reverse Mortgage must be in an amount no less than the greater of the insured premises fair market value or the maximum principal amount stated in the mortgage.
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.