The title insurance market in New York State is subject to close scrutiny by the State. Only title insurance corporations can issue a guaranteed search of title to real property or title insurance policies. The forms used to issue these products and the prices charged for those products must be filed with the New York State Department of Financial Services (DFS) and either approved by DFS or accepted by it as not discriminatory or violative of public policy. These products and their pricing are filed by title insurance corporations through a rate servicing organization called the Title Insurance Rate Service Association Inc. (TIRSA). The title insurance products filed and approved by DFS play a role in a large portion of the real estate transactions that occur each year in the state, so it is important when these products change. Changes will be occurring in the coming months.
TIRSA has filed and DFS has approved material changes to the New York State Rate Manual. These changes are effective as of October 1, 2024, and will affect title insurance policies issued with a Date of Policy on or after that date. This article outlines the important changes to the title insurance policy and endorsement forms available in New York for the real estate practitioner and in the title coverages available to the real estate practitioner at New York closings occurring on or after October 1, all because of the amendments to the New York State Rate Manual.
The ALTA 2021 owner’s and loan policy forms replace the “old” 2006 forms. The 2021 forms include a number of clarifications to matters considered ambiguous in the 2006 forms and update some of the language and coverages. For example, both the owner’s and loan 2021 forms include (as a “Covered Risk,” or insuring provision) insurance against loss resulting from a defect in Title because a document was acknowledged by remote online notarization or resulting from a document signed via applicable electronic transactions law being repudiated by the signatory.
Both the owner’s and loan 2021 forms provide coverage against loss resulting from the enforcement of PACA-PSA Trust (defined in each form as a trust under the federal Perishable Agricultural Commodities Act or the federal Packers and Stockyards Act or similar State or federal law), but only (pursuant to the Exclusions From Coverage) if there is a notice thereof recorded on the public records at the Date of Policy. Further, both the owner’s and loan 2021 forms include clarifying changes to language of the so-called “creditor’s rights” Covered Risk and the corresponding Exclusion From Coverage.
In addition to the foregoing, there are several other important changes reflected in the 2021 policy forms.
ALTA 2021 Owner’s Policy
Several new definitions were added to the policy: “Affiliate,” “Discriminatory Covenant,” “Enforcement Notice” and “State.” More importantly, the policy expands the definition of “Insured” to cover a spouse who acquires Title as a marital dissolution, anyone who acquires Title “effective on the death of an Insured” and any conveyance to a grantee that is an Affiliate. The effect of this change to the definition of “Insured” is to expand the number of instances where Title has or would devolve from the named Insured in the policy without the coverage in the title policy being terminated, limited or impaired.
Changes of note in the Conditions of the policy include a clarification of Condition 2 (Continuation of Coverage) regarding the circumstances under which the policy terminates. Specifically the changes make clear that the policy terminates when the Insured conveys the Title except that coverage continues so long as the Insured:
a) Retains and estate or interest in the land;
b) Owns an obligation secured by a purchase money Mortgage given by a purchaser from the Insured or
c) Has liability for warranties given by the Insured in any transfer or conveyance of an Insured’s Title.
One other change of import in the Conditions of the policy is contained in Condition 8(d). The ALTA 2006 policy form imposed a possible financial penalty (by automatically increasing the Amount of Insurance in the policy) on a title insurance company that chose to litigate a claim (rather than pay or settle) and is unsuccessful. The ALTA 2021 policy form increases that financial penalty by increasing the Amount of Insurance sby 15%. The 2006 ALTA policy had included a 10% increase.
ALTA 2021 Loan Policy
Several new definitions were added to the policy: “Affiliate,” “Discriminatory Covenant,” “Enforcement Notice,” “Government Mortgage
Agency or Instrumentality,” “Obligor” and “State.” More importantly, the ALTA 2021 loan policy amends the definition of “Indebtedness” and “Insured.” The definition of “Indebtedness” is broadened to include advances for insurance premiums, real estate taxes and assessments, regular, periodic assessments of homeowner’s association fees and advances to prevent waste of improvements on the Land, in each scase to the extent the advances occurred before the acquisition of Title. In addition, the definition of “Insured” has been revised to include:
a) The grantee of an Insured under a Deed or other instrument transferring the Title if that grantee is an Affiliate;
b) An Affiliate that acquires the Title through foreclosure or deed-in-lieu of the Insured Mortgage; or
c) Any Government Mortgage Agency or Instrumentality.
One effect of the revision in the definition of “Insured” will be to expand the instances where a loan policy remains in effect after a foreclosure or deed-in-lieu of the Insured Mortgage, an important and positive change.
There were some material changes made to Covered Risk 10. The ALTA 2021 loan policy insures against loss resulting from a lack of priority of the lien of the Insured Mortgage as security for several components of the Indebtedness:
- The amount of principal disbursed at Date of Policy.
- The interest on the amount secured by the Insured Mortgage.
- Reasonable expenses of foreclosure.
- Amounts advanced for insurance premiums, real estate taxes and assessments, regular, periodic assessments of homeowner’s association fees, and advanced to prevent waste of improvements on the Land, in each case to the extent the advances occurred before the acquisition of Title.
There has been some commentary on the inclusion of a perceived limitation on the priority coverage in Covered Risk 10 to the amount of principal disbursed at Date of Policy in the ALTA 2021 policy form. (The “Date of Policy” reference was not in the 2006 form.) I think it is unlikely, however, that there was any real expectation under the ALTA 2006 loan policy form for priority protection for unadvanced principal secured by the Insured Mortgage at Date of Policy; if there was, there would never be a purpose for any Future Advance or revolving credit endorsements. The inclusion of this phrase (“at Date of Policy”) is better seen as a clarification and not really a change.
Of course, the ALTA 2021 loan policy continues insure against loss resulting from the invalidity or unenforceability of the lien of the Insured Mortgage as security for the principal component of the Indebtedness whether advanced at or subsequent to the Date of Policy. Changes of note in the Conditions of the policy include a clarification of Condition 2 (Continuation of Coverage) regarding the circumstances under which the policy terminates. Specifically, the changes make clear that the policy terminates when the Insured conveys the Title except that coverage continues so long as the Insured:
a) Retains and estate or interest in the Land;
b) Owns an obligation secured by a purchase money Mortgage given by a purchaser from the Insured or
c) Has liability for warranties given by the Insured in any transfer or conveyance of an Insured’s Title.
One other change of import in the Conditions of the policy are contained in Condition 8(c). The ALTA 2006 policy form imposed a possible financial penalty (by automatically increasing the Amount of Insurance in the policy) on a title insurance company that chose to litigate a claim (rather than pay or settle) and is unsuccessful. The ALTA 2021 policy form increases that financial penalty by increasing the Amount of Insurance by 15%. The 2006 ALTA policy included a 10% increase. There has been a host of changes to the Definitions and Rules of the Rate Manual, as well as to sections relating to the application of some common discounted rates.
A number of the Definitions contained in Section 1 of the New York Rate Manual have been amended to clarify and minimize ambiguity in the various terms. The same is also true for the Rules that are set forth in Section 2 of the New York Rate Manual.
There is a substantive change to Section 2 as well. Because many of the ALTA endorsements that are available to provide so-called affirmative insurance or additional insurance in other states are being brought in for use in New York, the New York Rate Manual now prohibits the addition of affirmative insurance, additional insurance or express insurance being added or provided in the Policy by any means except by Endorsement set forth in Part IV of the Rate Manual and as expressly authorized in the Rate Manual. This change is part of the multi-year, multistep process to bring New York title insurance practices and products in line with the practices and products available elsewhere in the country.
In addition, a number of the Sections of the Rate Manual have been amended. In many cases, again, the amendments are intended to clarify or minimize ambiguity. Section 9 of the New York Rate Manual (“Construction Mortgage Insurance, Construction Mortgage Conversion Insurance; Minimum Insurance”), Section 12 of the New York Rate Manual (“Mortgage Refinance Transactions and Subordinate Mortgages”) and Section 13 of the New York Rate Manual (“Mortgage Modification and Construction Mortgage Modification (No New Money)”) all deal with common types of transactions for which the Rate Manual allows discounted rates to be charged provided the criteria set forth in each such Section was met. That criteria were often perceived as too narrow and difficult to meet.
For example, any change in ownership of the Title by deed or otherwise could disallow the application of a discount. The same could be true if Land changed (as with an assemblage or where some of the Land was released from the lien of the Insured Mortgage); even a conversion to condominium has been known to call the application of some of these discounts into question. The amendments that have been incorporated into these and other Sections address these concerns.
First, in each of these Sections there is now provision for a conveyance of the Title that does not trigger State Transfer Tax without disallowing the applicable discount. Second, the application of the so-called “assemblage rate” (where the Land covered by the loan policy covers the Identical Property as an owner’s policy and more Land) in Section 10 of the Rate Manual was clarified and broadened. Lastly, the broader definition of “Identical Property” in Section 1 of the Rate Manual (in essence, the same property or less) and the express provisions of Section 9 and Section 13 relating to condominium conversions allows for the continued application of these discounted rates where the subject real property is not precisely the same as that described in an earlier document or title policy, as applicable.
Lots of New Endorsements
Many of the endorsements in the current (pre-October 1) Rate Manual are being updated and amended; others are being withdrawn and/or replaced, generally by their ALTA equivalents. Still other endorsements are new to New York. Let’s focus on the endorsements and coverages that are new to New York. For clarity’s sake, many of the new endorsements may only be used here the Land covered by the policy is Residential Real Property, Commercial Real Property or both, and may be issued in connection with owner’s policies, loan policies or both. Among those endorsements now available are:
- TIRSA 3-06 Zoning Endorsement
- ALTA 9 Series of Endorsements
- TIRSA Mezzanine Financing Assignment of Proceeds Endorsement
- ALTA 27-06 Usury Endorsement
- ALTA 28 Series (Easements and Encroachments)
- TIRSA Identified Exception & Identified Risk Coverage
- ALTA 35 Series (Minerals and Other Subsurface Substances)
- ALTA 36 Energy Projects Series
- ALTA 40-06 Tax Credit (Owner’s Policy) Endorsement and ALTA 40.1-06 Tax Credit (Defined Amount- Owner’s Policy) Endorsement.
Change of this magnitude is certain to cause confusion. Look to your friends in the title insurance industry to provide the help and assistance that you need to get your next deal closed on time and with no hiccups.
