The Office of General Counsel issued the following opinion on May 10, 2005, representing the position of the New York State Insurance Department.
Re: Section 5 of TIRSA Manual: Request for Department Ruling That Fair Market Value of Buildings Are Less than Assessed Value
1. For purposes of title insurance, does the Department have the authority to rule that the fair market value of a building is less than the assessed value set by the New York Citys on-line land and building valuations?
2. Is a title insurance company required, in all applicable circumstances, to comply with Section 5 of the Title Insurance Rate Service Association ("TIRSA") Manual which provides that an owners policy shall not be issued for less than the greater of the contract price or the fair market value of the premises?
1. The Department does not have the authority to make such a ruling.
2. Assuming that the title insurance company in question is a member of TIRSA, such title insurance company is deemed to have adopted the TIRSA Manual, without any deviation. Thus, it is required to comply with the provisions therein, including Section 5 of the TIRSA Manual.
The inquirer is an attorney for the Housing Development Corporation ("HDC"). The inquirer asks that the Department make a ruling that the fair market value for two buildings owned by HDC is less than assessed by New York Citys on-line land and building valuations and that the amount of title insurance thereon should be modified downward to reflect the lesser value. By way of background, the inquirer claims that the insurer relied on the provisions of Section 5 of the TIRSA Manual and refused to issue a policy of less than $1,016,000.00 on both buildings. This amount, the inquirer claims, is the combined sum set forth in the Citys on-line land and building valuations.
The inquirer argues that, among other things, restrictions imposed by the terms of the cooperative conversion under which the buildings were sold by the City to HDC have a significant impact on the fair market value of the buildings. In addition, the inquirer states that the insurer has almost no risk of loss because of the particular circumstances of the transaction, including the chain of title from the City. Further, the inquirer states that a title policy in the sum of $250,000.00 per building would be equitable and argue that:
"It seems highly inequitable that the HDC, which operates on a cost basis, should be compelled to purchase a title policy in an amount that bears no relationship whatsoever to the actual fair market value of the buildings. On the other hand, the insurer, a for profit organization, enjoys a substantial fee but bears almost no risk of loss whatsoever."
Section 5(A) of the TIRSA Manual, entitled, "Minimum Insurance: Owners Policy", provides, as follows:
A. An owners policy shall not be issued for less than the greater of the contract price (including all unpaid liens thereon which the purchaser assumes or takes subject to) or the fair market value of the premises, except under the provisions of Section (3)(A),1 Section 15, Section 29, or Section 30 of this manual.
The Department does not have the authority to make a ruling on the fair market value of properties, nor does it have the expertise to make such a determination. In addition, assuming that the title insurance company in question is a member of TIRSA, such title insurance company is deemed to have adopted the TIRSA Manual, without any deviation. Thus, it is required to comply with the provisions therein, including Section 5 of the TIRSA Manual.
For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.
1 None of the exceptions appear to apply in this situation. Section 3(A) is entitled Coinsurance; Section 15 is entitled: Owners Policy to Foreclosing Lender; Section 29 is entitled Contract Vendee Insurance and Section 30 is entitled: Minimum Insurance Entity Purchase (with Non-Imputation Endorsement).