OGC Op. No. 03-01-16

The Office of General Counsel issued the following opinion on January 7, 2003, representing the position of the New York State Insurance Department.

Re: Mortgage Guaranty Insurance on Mixed Use Mortgages.

Question Presented:

May a mortgage guaranty insurer issue a policy in New York relating to mortgages on property where the improvement on the property consists of two to four units, one of which may be used for non-residential use?


Yes, a mortgage guaranty insurer may issue a policy in New York relating to mortgages on property under the circumstances described herein, so long as the property is used predominantly for residential purposes.


ABC Mortgage Insurance Co. (ABC) is an Arizona domiciled monoline mortgage guaranty insurer authorized as such in New York. You state, in pertinent part:

ABC proposes to issue mortgage guaranty insurance in connection with a program that permits financing of fixed rate mortgages that are secured by properties that have both residential and non-residential use. The property must have 2-4 units, one of which may have non-residential use (the "Property"). The owner of the Property is required to occupy a residential unit but is not required to own the business that occupies the commercial unit. However, the maximum permitted loan-to-value ratio ("LTV") for the mortgage (assuming that one unit is non-residential) ranges from 85% to 95%, depending upon the number of units involved. The intent of the program is to provide financing for neighborhood or community based storefront retail projects, such as drug stores, which are viewed as supporting and enhancing a residential neighborhood.

The inquirer asked whether the insurer may issue mortgage guaranty insurance in New York in connection with such mortgages. Alternatively, if the Department concludes that such insurance is not permissible under N.Y. Ins. Law Art. 65 (McKinney 2000), the inquirer requested a determination from the Superintendent under N.Y. Ins. Law § 1106(f)(McKinney 2000), that ABC may provide such insurance outside of New York.


Mortgage guaranty insurance is defined in N.Y. Ins. Law § 6501(a) (McKinney 2000) to mean "insurance against financial loss by reason of nonpayment of any sum required to be paid under the terms of any instrument of indebtedness secured by a lien on real estate." N.Y. Ins. Law § 6503(c)(1) (McKinney 2000), provides, in pertinent part, that a mortgage guaranty insurer may write mortgage guaranty insurance in New York only in connection with loans secured by "authorized real estate security," as defined in N.Y. Ins. Law § 6501(c) (McKinney 2000). The relevant provision of the definition is the requirement in § 6501(c)(1)(B) that: 

the improvement is a residential building or buildings designed for occupancy by not more than four families or is a condominium unit;…

Although not applicable to mortgage guaranty insurance, the definition of "covered policy" in N.Y. Ins. Law § 3425(a)(2)(A) (McKinney Supp. 2003) addresses an analogous situation. A "covered policy" includes a policy insuring "loss of or damage to real property used predominantly for residential purposes and which consists of not more than four dwelling units, other than hotels and motels." [Emphasis supplied.]

Although § 6501(c)(1)(B) does not contain language specifying predominant use, it does not state that the building has to be used exclusively for residential purposes. Therefore, the Department believes that a building may be residential under Article 65 even though not used exclusively for residential purposes so long as the building’s predominant usage is for residential purposes. This reading is consistent with the legislative purposes behind Article 65. As stated in the Department’s June 8, 1973, Memorandum in Support of the bill that was enacted as Chapter 903:

The purpose of the bill is to make it possible for more people to acquire their own homes with smaller down payments, as is now possible through VA and FHA programs, which provide federal mortgage insurance. While the value of a home provides ample security for mortgage loans made on homes acquired with larger down payments, many people cannot afford such larger down payments and are precluded from home ownership without VA or FHA backing. New York is presently the only state that does not authorize the business of private mortgage guarantee insurance. It has proven to be highly effective in other states in ameliorating the difficulties of obtaining adequate home mortgage insurance. This measure would make private mortgage guarantee insurance available to New York home buyers.

The Department’s reading of the statute is consistent with the legislative purposes, as detailed in the above memorandum, as it would make private mortgage guaranty insurance available for more New York home buyers. Accordingly, the Property would constitute authorized real estate security under Article 65 so long as the Property is used predominantly for residential purposes.

Since we have concluded that a mortgage guaranty insurer may provide insurance under the above circumstances, it does not appear necessary to address the § 1106 issue.

For further information you may contact Deputy Superintendent and General Counsel Audrey Samers at the New York City Office.