Mechanics Lien Coverage

Mechanics Lien Mechanics Lien CoverageCoverage

Mechanics Lien CoverageMechanics Lien Coverage

Mechanics Liens are a pervasive Mechanics Liens are a pervasive problemproblem

Existing law favors builders and Existing law favors builders and subcontractorssubcontractors

Dangerous CoverageDangerous Coverage

Basic RequirementsBasic Requirements

This is designed to be a basic This is designed to be a basic overviewoverview

For more specific issues, contact For more specific issues, contact underwritingunderwriting

Construction LoansConstruction Loans

The priority of the lien created by The priority of the lien created by recording is especially important in recording is especially important in construction loan situations. If it is construction loan situations. If it is necessary to determine that no necessary to determine that no improvements have commenced in improvements have commenced in order to insure priority in your order to insure priority in your jurisdiction, the following jurisdiction, the following requirements must be met requirements must be met

RequirementsRequirements

Owner/Builder Affidavit stating that Owner/Builder Affidavit stating that no work has commenced and no no work has commenced and no delivery of materials has been made delivery of materials has been made that would create a lien prior to our that would create a lien prior to our insured’s. insured’s.

RequirementsRequirements

Satisfactory indemnification to the Satisfactory indemnification to the company for any losses arising from company for any losses arising from mechanics’ liensmechanics’ liens. . NoteNote: : This indemnity This indemnity must be based on receipt and analysis of current must be based on receipt and analysis of current financial statements provided by the owner and financial statements provided by the owner and contractor, and approval of the financial contractor, and approval of the financial statements and indemnity agreements by Agents statements and indemnity agreements by Agents

National Title underwriting counsel.National Title underwriting counsel.   

RequirementsRequirements

Completion and submission of ANTIC’s Completion and submission of ANTIC’s Request for Policy Authorization for Request for Policy Authorization for Unusual RisksUnusual Risks

Verification/Evidence of non-Verification/Evidence of non-commencement of construction must be commencement of construction must be obtained by agent and retained in the obtained by agent and retained in the agent’s file. Such evidence may consist of agent’s file. Such evidence may consist of photographs that are dated and certified.photographs that are dated and certified.

RequirementsRequirements

Surveyor’s report disclosing that no Surveyor’s report disclosing that no commencement has begun, nor have commencement has begun, nor have materials been delivered to the sitematerials been delivered to the site

Recording of the construction loan Recording of the construction loan mortgage concurrently with the mortgage concurrently with the inspection in no.4 inspection in no.4

Commitment and Policy ExceptionsCommitment and Policy Exceptions

Communicate with the proposed Communicate with the proposed insured(s) that additional insured(s) that additional requirement will be made in order to requirement will be made in order to finalize their final policy finalize their final policy

Commitment and Schedule BCommitment and Schedule B

At the commitment stage, if there is At the commitment stage, if there is the potential of home improvement, the potential of home improvement, new construction, or any new construction, or any improvements being made to the improvements being made to the property (i.e. significant landscaping, property (i.e. significant landscaping, excavating, etc.), the following excavating, etc.), the following exception/requirement shall be exception/requirement shall be raised on Schedule B: raised on Schedule B:

ExceptionException

In the event that new construction or In the event that new construction or improvement is taking place or has improvement is taking place or has recently taken place on the land, the recently taken place on the land, the Company will require that a Sworn Company will require that a Sworn Construction Statement and all Construction Statement and all appropriate waivers of lien be appropriate waivers of lien be furnished 5 days prior to closing. The furnished 5 days prior to closing. The Company reserves the right to raise Company reserves the right to raise additional exceptions, if any, upon additional exceptions, if any, upon examination of said statement and examination of said statement and waivers.waivers.

Pending Disbursement Pending Disbursement ClauseClause

Pending disbursement of the full proceeds of the loan Pending disbursement of the full proceeds of the loan secured by the [Mortgage/Deed of Trust] shown in secured by the [Mortgage/Deed of Trust] shown in Schedule A, this policy insures only to the extent of the Schedule A, this policy insures only to the extent of the funds actually owed to the lender of the specific project, funds actually owed to the lender of the specific project, disbursed and secured by the [mortgage/Deed of Trust] disbursed and secured by the [mortgage/Deed of Trust] insured herein, but increases as each disbursement is insured herein, but increases as each disbursement is made for improvements to the land and in good faith and made for improvements to the land and in good faith and without knowledge of any defects in, or objection to, the without knowledge of any defects in, or objection to, the title, up to the Amount of Insurance shown in Schedule A, title, up to the Amount of Insurance shown in Schedule A, provided that the loan be made by a lender with authority provided that the loan be made by a lender with authority to make such loan. At the time of each disbursement of to make such loan. At the time of each disbursement of the proceeds of the loan, the title must be searched by the the proceeds of the loan, the title must be searched by the Company, down to such time, for possible liens or Company, down to such time, for possible liens or objections intervening between the date hereof and the objections intervening between the date hereof and the date of such disbursement, but neither the date of the date of such disbursement, but neither the date of the policy nor any other such provision shall be deemed policy nor any other such provision shall be deemed changed by virtue of such disbursement. (Notwithstanding changed by virtue of such disbursement. (Notwithstanding the face amount of the policy, the amount of liability will the face amount of the policy, the amount of liability will be limited to the actual amount disbursed).be limited to the actual amount disbursed).

Pending DisbursementPending Disbursement

The pending disbursement clause notifies The pending disbursement clause notifies the proposed insured that the policy will the proposed insured that the policy will be limited to the amount of funds be limited to the amount of funds disbursed rather than the total amount disbursed rather than the total amount insured (if disbursements are less than insured (if disbursements are less than total amount insured) and that for each total amount insured) and that for each draw, a date down/take down search will draw, a date down/take down search will be performed covering the gap of the last be performed covering the gap of the last draw to the next draw.draw to the next draw.

Disbursement: Waivers, Disbursement: Waivers, Statements, Date Downs and Other Statements, Date Downs and Other

RequirementsRequirements Waivers must be obtained from the Waivers must be obtained from the

general AND subcontractors. No general AND subcontractors. No exceptions.exceptions.

Also need an indemnity from a party Also need an indemnity from a party with liquid financial resources to with liquid financial resources to sufficient to cover all unpaid sufficient to cover all unpaid construction costs in fullconstruction costs in full

Requirements ContinuedRequirements Continued

Proof of financial responsibility, Proof of financial responsibility, ability and status of construction and ability and status of construction and financing will be required to obtain financing will be required to obtain approval for waiver of the mechanics approval for waiver of the mechanics lien exception on new developments. lien exception on new developments.

Requirements ContinuedRequirements Continued

Search of the insured property must Search of the insured property must be done to cover the effective date be done to cover the effective date of the drawof the draw

Visual inspection must be performed Visual inspection must be performed to verify the work was actually doneto verify the work was actually done

DisbursementDisbursement

Prior to issuing checks, verify the Prior to issuing checks, verify the receipt of funds and balance those receipt of funds and balance those receipts with the disbursements to receipts with the disbursements to ensure all funds are accounted for ensure all funds are accounted for correctly. correctly.

The disbursement funds must be The disbursement funds must be maintained in an escrow account and maintained in an escrow account and a three-way reconciliation preformed a three-way reconciliation preformed at least monthly at least monthly

DisbursingDisbursing

All All funds should be disbursed directly funds should be disbursed directly to each contractor in exchange for to each contractor in exchange for their waiver. their waiver.

Do not disburse funds to the general Do not disburse funds to the general contractor on behalf of the other contractor on behalf of the other contractors. contractors.

This is to avoid fraudulent waivers This is to avoid fraudulent waivers and disappearing money! and disappearing money!

Final PoliciesFinal Policies

The exception regarding the The exception regarding the requirement for the Sworn requirement for the Sworn Construction Statement and waivers Construction Statement and waivers may be removed upon receipt of all may be removed upon receipt of all required documents required documents

Final PoliciesFinal Policies Pending Disbursement Clause for policy:Pending Disbursement Clause for policy: NOTE: Pending disbursement of the full proceeds of the NOTE: Pending disbursement of the full proceeds of the

loan secured by the mortgage shown in Schedule A, this loan secured by the mortgage shown in Schedule A, this policy insures only to the extent of the funds actually owed policy insures only to the extent of the funds actually owed to the lender of the specific project, disbursed and secured to the lender of the specific project, disbursed and secured by the [mortgage/Deed of Trust] herein, but increases as by the [mortgage/Deed of Trust] herein, but increases as each disbursement is made for improvements to the land each disbursement is made for improvements to the land and in good faith and without knowledge of any defects in, and in good faith and without knowledge of any defects in, or objection to, the title, up to the Amount of Insurance or objection to, the title, up to the Amount of Insurance shown in Schedule A, provided that the loan be made by a shown in Schedule A, provided that the loan be made by a lender with authority to make such loan. At the time of lender with authority to make such loan. At the time of each disbursement of the proceeds of the loan, the title each disbursement of the proceeds of the loan, the title must be searched by the Company, down to such time, for must be searched by the Company, down to such time, for possible liens or objections intervening between the date possible liens or objections intervening between the date hereof and the date of such disbursement, but neither the hereof and the date of such disbursement, but neither the date of the policy nor any other such provision shall be date of the policy nor any other such provision shall be deemed changed by virtue of such disbursement. deemed changed by virtue of such disbursement. (Notwithstanding the face amount of the policy, the (Notwithstanding the face amount of the policy, the amount of liability is hereby limited to $____________).amount of liability is hereby limited to $____________).

Date DownDate Down

The date down endorsement shall reflect The date down endorsement shall reflect the date of the draw and amend the the date of the draw and amend the pending disbursement clause to contain pending disbursement clause to contain the total amount disbursed as of the the total amount disbursed as of the effective date of the policy date down effective date of the policy date down

The process must be repeated in which The process must be repeated in which waivers are obtained from the general and waivers are obtained from the general and subcontractors, along with undertakings subcontractors, along with undertakings by the owner of the property for any liens by the owner of the property for any liens that may/can arise through the that may/can arise through the construction process construction process

Broken PriorityBroken Priority

In the event that work has been done In the event that work has been done on the insured property before on the insured property before funding of the first draw, it will be funding of the first draw, it will be necessary to obtain final approval necessary to obtain final approval from an Agents National Title from an Agents National Title underwriter in order to waive the underwriter in order to waive the mechanics lien exception from the mechanics lien exception from the final policy final policy

Broken PriorityBroken Priority This can include, but is not limited to, any This can include, but is not limited to, any

excavating, pre-construction, drafting, excavating, pre-construction, drafting, survey work, etc. Waivers will need to be survey work, etc. Waivers will need to be obtained and an undertaking required by obtained and an undertaking required by the owner/obligor on the property. the owner/obligor on the property.

In regards to personal undertakings, you In regards to personal undertakings, you must obtain approval from an underwriter must obtain approval from an underwriter prior to accepting the undertaking and prior to accepting the undertaking and there may be additional requirement there may be additional requirement depending on the facts of the situation.depending on the facts of the situation.

Guidelines of When To IssueGuidelines of When To Issue

Residential: one to four family Residential: one to four family structurestructure

Commercial: everything else!Commercial: everything else! During construction applies in equal During construction applies in equal

force to remodeling/expansion of force to remodeling/expansion of existing structuresexisting structures

GuidelinesGuidelines COMMERCIAL, DURING COMMERCIAL, DURING

CONSTRUCTION: Insurance against CONSTRUCTION: Insurance against mechanic’s liens in these cases mechanic’s liens in these cases cannot be done without a case-by-cannot be done without a case-by-case approval of the Underwriting case approval of the Underwriting Department, under the terms fixed Department, under the terms fixed by the underwriter. The agent may or by the underwriter. The agent may or may not be disbursing the funds. may not be disbursing the funds.

GuidelinesGuidelines COMMERCIAL, COMPLETE, BUT LIEN COMMERCIAL, COMPLETE, BUT LIEN

PERIOD NOT EXPIRED.PERIOD NOT EXPIRED. In these cases, In these cases, you must take reasonable measures to you must take reasonable measures to verify that all bills have been paid verify that all bills have been paid through a final affidavit from the through a final affidavit from the general contractor, and lien waivers general contractor, and lien waivers from the general contractor and from the general contractor and subcontractors and suppliers have been subcontractors and suppliers have been obtained. The agent may or may not obtained. The agent may or may not have disbursed the funds. In addition, have disbursed the funds. In addition, indemnities from the owner and general indemnities from the owner and general contractor, contractor, satisfactory to the satisfactory to the Company (ANTIC)Company (ANTIC), should be , should be procured.procured.

GuidelinesGuidelines RESIDENTIAL, DURING RESIDENTIAL, DURING

CONSTRUCTION, AGENT NOT CONSTRUCTION, AGENT NOT DISBURSING. The risk of mechanic’s DISBURSING. The risk of mechanic’s liens in this category is unacceptable liens in this category is unacceptable to the Company, to the Company, andand therefore therefore may not be committed to under may not be committed to under any circumstancesany circumstances

GuidelinesGuidelines RESIDENTIAL, DURING CONSTRUCTION, AGENT RESIDENTIAL, DURING CONSTRUCTION, AGENT

DISBURSING. Disbursements must be made DISBURSING. Disbursements must be made directly to subcontractors and suppliers, or for directly to subcontractors and suppliers, or for builders with approved credit, disbursements builders with approved credit, disbursements may be made directly to the builder, so long may be made directly to the builder, so long as lien waivers from the subs and suppliers are as lien waivers from the subs and suppliers are furnished before the succeeding requisition of furnished before the succeeding requisition of funds. “Approved credit” means that financial funds. “Approved credit” means that financial statements are regularly furnished, and found statements are regularly furnished, and found acceptable acceptable by the Company (ANTIC)by the Company (ANTIC), and , and that other available sources of information are that other available sources of information are not suggestive of potential problemsnot suggestive of potential problems

GuidelinesGuidelines RESIDENTIAL, COMPLETE, BUT LIEN RESIDENTIAL, COMPLETE, BUT LIEN

PERIOD NOT EXPIRED. This may be PERIOD NOT EXPIRED. This may be done for established builders of good done for established builders of good reputation and approved credit, as reputation and approved credit, as defined above, who are established defined above, who are established customers of the agent. In all cases customers of the agent. In all cases lien waivers from subs and suppliers lien waivers from subs and suppliers must be furnished at closing, with must be furnished at closing, with holdbacks for unpaids holdbacks for unpaids

Pricing For CoveragePricing For Coverage Missouri: No charge. But subject to Missouri: No charge. But subject to

changechange Indiana: $500 minumum or 5 cents Indiana: $500 minumum or 5 cents

per thousand, whichever is greater per thousand, whichever is greater for an Owners policy. No charge for for an Owners policy. No charge for loan.loan.