Mechanic's liens are a significant source of claims. This bulletin advises you of required procedures relating to mechanic's liens and mechanic's liens coverage only on Loan Policies during construction (including rehabilitation, renovation, and the like). It should be read in conjunction with other National and state-specific Bulletins relating to mechanic's liens, including MI2009009.
(A). Do not delete the general mechanic's liens exception from the Loan Policy during construction without underwriter approval.
(B). Require Mechanic's Liens Documentation described in Bulletin MI2009009 and Exhibit 1 below.
(C). Include our Pending Disbursement Clause as described in paragraph C below if the Loan Policy is issued during construction.
(D). Other forms of coverage, including the Construction Loan Endorsement, are referred to in paragraph D below.
(E). Any Future Advance Endorsement must contain a mechanic's liens exception as described in paragraph E below.
A. The General Mechanic's Liens Exception
All commitments and policies should contain a general mechanic's liens exception for "Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the Public Records."
Before or during construction, or if you are unable to determine that no construction has been or will be performed, you may not delete the general mechanic's liens exception from a Loan Policy without Underwriter approval.
B. Mechanic's Liens Documentation
The Mechanic's Liens Documentation, all in a form acceptable to the Company, are required as a condition to providing mechanic's liens coverage, unless otherwise approved by an underwriter as described in Bulletin MI2009009 and Exhibit 1 below. You also should determine that the mortgage complies with Michigan law for future advances.
Approval: An underwriter must approve issuance of the Loan Policy.
You must retain these documents and approval in your file.
C. Pending Disbursement Clauses
Our pending disbursement clause, PDCX13 MI STGC, inserted as an exception, must appear in all Commitments and Loan Policies issued prior to and during construction. This requirement applies whether you have been able to document the absence of construction or not. You must use the following Pending Disbursement Clause:
Pending disbursement of the full proceeds of the loan secured by the Mortgage in Schedule A, this Policy insures only to the extent of $0.00 being the aggregate of the amount actually disbursed at the date hereof under the terms of the mortgage set forth in Schedule A. Any disbursement made subsequent to the date hereof shall be insured only with the written approval of the Company. Such approval shall, as of the extended Date of Policy, have the effect of insuring such disbursements as a valid lien prior to any liens or other matters evidenced of record, except such as may be included in Schedule B, Part I, and prior to any unrecorded construction liens arising from non-payment of bills covered in the improvements set forth in the sworn statements and documents evidencing work progress submitted to the Company in connection with such disbursements, and for which funds were actually advanced.
This policy does not insure against construction liens for labor or material furnished subsequent to the last extended Date of Policy, or construction liens for labor and material for which funds were not actually advanced for payment, nor does this policy guarantee completion of the improvements in progress, or their compliance with plans and specifications.
You may not modify the clause and an Underwriter must approve use of the clause and issuance of the Loan Policy.
D. Other Forms
Use of any other form of pending disbursement clause, or any other endorsement providing mechanic's liens coverage, or issuance of a "clean" policy (i.e., where the general mechanic's liens exception is deleted but no suitable pending disbursement clause has been inserted, although the Exclusions apply) requires approval of the Senior Underwriting Committee.
Construction Loan Endorsement. During construction, you may issue the Michigan Construction Loan Endorsement as provided in Bulletin MI2009009. Any other form of Down Date must be approved by an Underwriter.
E. Future and Future Advance/Revolving Credit Endorsements
You may not issue a Future Advance/Revolving Credit Endorsement (such as ALTA Endorsement 14-06, 14.1-06, or 14.2-06) on a Loan Policy insuring a construction loan mortgage unless the endorsement includes a mechanic's liens exception, such as the general mechanic's liens exception.
If you have questions relating to this bulletin or any of the referenced bulletins, please contact Stewart Legal Services or your local underwriting personnel.
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