Guideline: STG Construction Loan Endorsement
Explanation:During construction, upon satisfaction of the requirements stated in the applicable pending disbursement clause, you may issue an endorsement to the Loan Policy only which may extend the Date of Policy and/or increase the Amount of Insurance. You should use STG Construction Loan Endorsement, where permitted.
You should not issue a Down Date Endorsement unless it is modified to be substantially similar to the Construction Loan Endorsement or provides more limited coverage than the Construction Loan Endorsement. Any other form of Down Date Endorsement must be approved by an underwriter. You may not issue CLTA Endorsement 122 unless paragraph 6 is deleted (as discussed elsewhere).
Unless otherwise directed by your underwriter, you should not issue a Construction Loan Endorsement or Down Date Endorsement on a loan policy during construction if any mechanic's liens have been filed and remain unresolved, or if any requirement of the pending disbursement clause has not been satisfied. You must be satisfied that the general contractor is paid from the current draw, and that subcontractors were actually paid for waivers from the prior draw.
You should anticipate that the issuance of a Construction Loan Endorsement will generally require some form of disbursement control and/or lien waiver monitoring.
1. Construction disbursements. During construction, prior to issuing a Construction Loan Endorsement, you must have:
a. Copy of the written draw request from the general contractor;
b. Satisfactory title continuation/bringdown. Each time a draw request is made, you must do a continuation/bringdown from the date of the policy or last endorsement. Provided your continuation/bringdown discloses no intervening matters, and all other requirements have been satisfied, an endorsement may be issued increasing the Amount of Insurance and/or changing the Date of Policy;
c. Proof of payment (lien waivers, paid bills, receipts, etc.). If the policy contains Pending Disbursement Clause PDCX06 STGC or PDCX07 STGC, as a condition to issuing a Construction Loan Endorsement, the owner/contractor must provide you with lien waivers, proof of payment, etc. from each subcontractor/supplier providing services, labor and/or material, through the date of the prior disbursement, and you must keep a running total of all such proofs of payment. In the event there is a discrepancy (e.g., between the amounts requested and the total of lien waivers received), you must communicate with the lender to determine the reason. Any discrepancy must be reconciled prior to the issuance of any Construction Loan Endorsement;
d. Interim Affidavit and Agreement executed by the owner and general contractor stating that all subcontractors and suppliers were properly paid;
e. Independent Confirmation of Payment. You must contact a cross-section sample of the subcontractors who have executed the lien waivers to confirm that they are actually being paid. A different cross-section sample should be contacted for each Construction Loan Endorsement;
f. Site inspections. At regular intervals, you should inspect the job site to determine that work on the project is continuing. Many lenders employ independent inspectors to determine the progress of construction. If available, you may substitute a copy of the inspector's latest report.
g. The Loan Policy, containing the appropriate pending disbursement clause, must be issued promptly, so that all Construction Loan Endorsements reference the correct policy number. Do not issue any Construction Loan Endorsements to a commitment.
2. Schedule A
a. Date of Policy: If the policy contains Pending Disbursement Clause PDCX06 STGC or PDCX07 STGC, the date to be filled in may be the date for the prior disbursement for which waivers of original contractors and subcontractors are furnished and you are satisfied payment has been made. If the policy contains Pending Disbursement Clause PDCX06 STGC, the date to be filled in may be the date of the current disbursement for which waivers of original contractors and subcontractors are furnished and if you are satisfied payment has been made for the current draw to original contractors and for the previous draws to the subcontractors. If the policy contains Pending Disbursement Clause PDCX08 STGC, the date to be filled in may be the date of the current disbursement.
If you do not extend the Date of Policy coverage, you should add the following, or similar language, to the Construction Loan Endorsement: "The effective Date of Policy remains the date stated in Schedule A, or as otherwise previously changed by prior endorsement."
b. Amount of Insurance: If the policy contains Pending Disbursement Clause PDCX08 STGC or PDCX06 STGC, the amounts inserted in the Amount of Insurance section may be based upon the loan advances made to date. If the policy contains Pending Disbursement Clause PDCX07 STGC , the amounts inserted generally will be based upon the amount of lien waivers/proofs of payment received to date. If you are not changing the Amount of Insurance, you should add the following, or similar language, to the Construction Loan Endorsement: "The Amount of Insurance remains the amount stated in the pending disbursement clause (endorsement) in the policy, or as otherwise changed by prior endorsement."
3. Schedule B
a. Survey matters and related endorsements and affirmative coverages: The ongoing construction may affect survey matters (e.g., encroachments, setback lines, etc), and/or coverages (endorsements or affirmative insurance, e.g., ALTA 9, etc.) that may have been covered by the policy as of the original Date of Policy. Unless specifically underwritten and addressed, the down dates exclude such matters and coverages subsequent to the original Date of Policy. If you do not secure an updated survey, you should add the following, or similar language, to the Construction Loan Endorsement: "Matters which would be shown by a correct current survey and inspection of the Land subsequent to the Date of Policy stated in Schedule A and any endorsements or affirmative coverages that would be affected by such matters."
b. Deleting Exceptions: Except perhaps for the tax exception, you should not delete any existing exceptions without approval of an underwriter. If you delete the tax exception, you should replace it with a current tax exception.
c. Adding Exceptions: You should add an exception for taxes and any new matters that are disclosed by your search. As an alternative to a tax search, you may add the following: "Note: Taxes are not further examined."
d. Mechanic's liens: Unless otherwise directed by your underwriter, you should not issue a Construction Loan Endorsement or Down Date Endorsement if any mechanic's liens or claims of lien have been filed and remain unresolved.
4. Modifications. A request to modify a construction loan policy (for example, as a result of a modification of an existing construction mortgage) should treated as a request for new coverage. Underwriter approval is required. Please submit an updated Overlimits request.
The underwriting guidelines contained herein have been provided for general reference. The facts, circumstances, and location of the subject property should be considered when determining the issuance of the requested form or endorsement. Please note that all of the forms and endorsements included in this system may not be available in all states. Accordingly, please contact the appropriate Stewart Title Guaranty Company underwriting personnel in order to determine availability.
Compliance with the underwriting guidelines contained herein in no way obligates Stewart Title Guaranty Company to issue any form or endorsement.
This guideline applies to the following form(s):