Mechanics Lien Coverage
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Mechanics Lien Coverage

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Power Point of the Mechanics Lien Bulletin.

Power Point of the Mechanics Lien Bulletin.

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Mechanics Lien Coverage Presentation Transcript

  • 1. Mechanics Lien Coverage
  • 2. Mechanics Lien Coverage
    • Mechanics Liens are a pervasive problem
    • Existing law favors builders and subcontractors
    • Dangerous Coverage
  • 3. Basic Requirements
    • This is designed to be a basic overview
    • For more specific issues, contact underwriting
  • 4. Construction Loans
    • The priority of the lien created by recording is especially important in construction loan situations. If it is necessary to determine that no improvements have commenced in order to insure priority in your jurisdiction, the following requirements must be met
  • 5. Requirements
    • Owner/Builder Affidavit stating that no work has commenced and no delivery of materials has been made that would create a lien prior to our insured’s.
  • 6. Requirements
    • Satisfactory indemnification to the company for any losses arising from mechanics’ liens . Note : This indemnity must be based on receipt and analysis of current financial statements provided by the owner and contractor, and approval of the financial statements and indemnity agreements by Agents National Title underwriting counsel.  
  • 7. Requirements
    • Completion and submission of ANTIC’s Request for Policy Authorization for Unusual Risks
    • Verification/Evidence of non-commencement of construction must be obtained by agent and retained in the agent’s file. Such evidence may consist of photographs that are dated and certified.
  • 8. Requirements
    • Surveyor’s report disclosing that no commencement has begun, nor have materials been delivered to the site
    • Recording of the construction loan mortgage concurrently with the inspection in no.4
  • 9. Commitment and Policy Exceptions
    • Communicate with the proposed insured(s) that additional requirement will be made in order to finalize their final policy
  • 10. Commitment and Schedule B
    • At the commitment stage, if there is the potential of home improvement, new construction, or any improvements being made to the property (i.e. significant landscaping, excavating, etc.), the following exception/requirement shall be raised on Schedule B:
  • 11. Exception
    • In the event that new construction or improvement is taking place or has recently taken place on the land, the Company will require that a Sworn Construction Statement and all appropriate waivers of lien be furnished 5 days prior to closing. The Company reserves the right to raise additional exceptions, if any, upon examination of said statement and waivers.
  • 12. Pending Disbursement Clause
    • Pending disbursement of the full proceeds of the loan secured by the [Mortgage/Deed of Trust] shown in Schedule A, this policy insures only to the extent of the funds actually owed to the lender of the specific project, disbursed and secured by the [mortgage/Deed of Trust] insured herein, but increases as each disbursement is made for improvements to the land and in good faith and without knowledge of any defects in, or objection to, the title, up to the Amount of Insurance shown in Schedule A, provided that the loan be made by a lender with authority to make such loan. At the time of each disbursement of the proceeds of the loan, the title must be searched by the Company, down to such time, for possible liens or objections intervening between the date hereof and the date of such disbursement, but neither the date of the policy nor any other such provision shall be deemed changed by virtue of such disbursement. (Notwithstanding the face amount of the policy, the amount of liability will be limited to the actual amount disbursed).
  • 13. Pending Disbursement
    • The pending disbursement clause notifies the proposed insured that the policy will be limited to the amount of funds disbursed rather than the total amount insured (if disbursements are less than total amount insured) and that for each draw, a date down/take down search will be performed covering the gap of the last draw to the next draw.
  • 14. Disbursement: Waivers, Statements, Date Downs and Other Requirements
    • Waivers must be obtained from the general AND subcontractors. No exceptions.
    • Also need an indemnity from a party with liquid financial resources to sufficient to cover all unpaid construction costs in full
  • 15. Requirements Continued
    • Proof of financial responsibility, ability and status of construction and financing will be required to obtain approval for waiver of the mechanics lien exception on new developments.
  • 16. Requirements Continued
    • Search of the insured property must be done to cover the effective date of the draw
    • Visual inspection must be performed to verify the work was actually done
  • 17. Disbursement
    • Prior to issuing checks, verify the receipt of funds and balance those receipts with the disbursements to ensure all funds are accounted for correctly.
    • The disbursement funds must be maintained in an escrow account and a three-way reconciliation preformed at least monthly
  • 18. Disbursing
    • All funds should be disbursed directly to each contractor in exchange for their waiver.
    • Do not disburse funds to the general contractor on behalf of the other contractors.
    • This is to avoid fraudulent waivers and disappearing money!
  • 19. Final Policies
    • The exception regarding the requirement for the Sworn Construction Statement and waivers may be removed upon receipt of all required documents
  • 20. Final Policies
    • Pending Disbursement Clause for policy:
    • NOTE: Pending disbursement of the full proceeds of the loan secured by the mortgage shown in Schedule A, this policy insures only to the extent of the funds actually owed to the lender of the specific project, disbursed and secured by the [mortgage/Deed of Trust] herein, but increases as each disbursement is made for improvements to the land and in good faith and without knowledge of any defects in, or objection to, the title, up to the Amount of Insurance shown in Schedule A, provided that the loan be made by a lender with authority to make such loan. At the time of each disbursement of the proceeds of the loan, the title must be searched by the Company, down to such time, for possible liens or objections intervening between the date hereof and the date of such disbursement, but neither the date of the policy nor any other such provision shall be deemed changed by virtue of such disbursement. (Notwithstanding the face amount of the policy, the amount of liability is hereby limited to $____________).
  • 21. Date Down
    • The date down endorsement shall reflect the date of the draw and amend the pending disbursement clause to contain the total amount disbursed as of the effective date of the policy date down
    • The process must be repeated in which waivers are obtained from the general and subcontractors, along with undertakings by the owner of the property for any liens that may/can arise through the construction process
  • 22. Broken Priority
    • In the event that work has been done on the insured property before funding of the first draw, it will be necessary to obtain final approval from an Agents National Title underwriter in order to waive the mechanics lien exception from the final policy
  • 23. Broken Priority
    • This can include, but is not limited to, any excavating, pre-construction, drafting, survey work, etc. Waivers will need to be obtained and an undertaking required by the owner/obligor on the property.
    • In regards to personal undertakings, you must obtain approval from an underwriter prior to accepting the undertaking and there may be additional requirement depending on the facts of the situation.
  • 24. Guidelines of When To Issue
    • Residential: one to four family structure
    • Commercial: everything else!
    • During construction applies in equal force to remodeling/expansion of existing structures
  • 25. Guidelines
    • COMMERCIAL, DURING CONSTRUCTION: Insurance against mechanic’s liens in these cases cannot be done without a case-by-case approval of the Underwriting Department, under the terms fixed by the underwriter. The agent may or may not be disbursing the funds.
  • 26. Guidelines
    • COMMERCIAL, COMPLETE, BUT LIEN PERIOD NOT EXPIRED. In these cases, you must take reasonable measures to verify that all bills have been paid through a final affidavit from the general contractor, and lien waivers from the general contractor and subcontractors and suppliers have been obtained. The agent may or may not have disbursed the funds. In addition, indemnities from the owner and general contractor, satisfactory to the Company (ANTIC) , should be procured.
  • 27. Guidelines
    • RESIDENTIAL, DURING CONSTRUCTION, AGENT NOT DISBURSING. The risk of mechanic’s liens in this category is unacceptable to the Company, and therefore may not be committed to under any circumstances
  • 28. Guidelines
    • RESIDENTIAL, DURING CONSTRUCTION, AGENT DISBURSING. Disbursements must be made directly to subcontractors and suppliers, or for builders with approved credit, disbursements may be made directly to the builder, so long as lien waivers from the subs and suppliers are furnished before the succeeding requisition of funds. “Approved credit” means that financial statements are regularly furnished, and found acceptable by the Company (ANTIC) , and that other available sources of information are not suggestive of potential problems
  • 29. Guidelines
    • RESIDENTIAL, COMPLETE, BUT LIEN PERIOD NOT EXPIRED. This may be done for established builders of good reputation and approved credit, as defined above, who are established customers of the agent. In all cases lien waivers from subs and suppliers must be furnished at closing, with holdbacks for unpaids
  • 30. Pricing For Coverage
    • Missouri: No charge. But subject to change
    • Indiana: $500 minumum or 5 cents per thousand, whichever is greater for an Owners policy. No charge for loan.