Mechanic's liens are a significant source of claims. This bulletin advises you of required procedures relating to mechanic's liens and mechanic's lien 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 VA000004, VA000006, VA000008, and VA000016.
(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 Bulletins VA000004, VA000006, VA000008, and VA000016, and the current Stewart Virginia Mechanic's Lien Procedures Booklet.
(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 applicable Disbursement 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
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 Bulletins VA000004, VA000006, VA000008, and VA000016, and the current Stewart Virginia Mechanic's Lien Procedures Booklet. You also should determine that the mortgage complies with Virginia 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 (See Exhibit 1 below)
Our standard pending disbursement clause must appear in all Loan Policies issued prior to and during construction. The applicable Pending Disbursement Clause is the "Stewpend" Pending Disbursement Clause. If we consider the project to be a high risk project, we will require use of Pending Disbursement Clause "RESTPEND."
You may not modify any clause and an Underwriter must approve use of any clause and issuance of the Loan Policy.
"Stewpend" Pending Disbursement Clause provides limited coverage for mechanic's liens arising from non-payment of bills for labor performed or material furnished prior to a specific date and in accordance our requirements. In the alternative, an Underwriter may authorize use of Pending Disbursement Clause "RESTPEND," which provides limited coverage for mechanic's liens by those persons or entities receiving payments directly as provided in the clause pursuant to written disbursement authorization approved by the Insured.
D. Other Forms: DRAW ENDORSEMENTS
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 in Houston, Texas.
Disbursement a/k/a Draw Endorsements. During construction, you may issue with prior underwriter construction loan approval the "STEWDRAWEND." See References (below) for the standard "STEWDRAWEND" draw endorsement to be used in conjunction with the standard pending disbursement clause "STEWPEND".
See References (below) for restricted disbursement endorsement for higher risk projects, using the "RESTDRAWEND" draw endorsement.
The standard Disbursement Endorsement where the "Stewpend" Pending Disbursement Clause is used, or the more restrictive Stewart Disbursement Endorsement where Pending Disbursement Clause "RESTDRAWEND" is used, are subject to our guidelines in the applicable Bulletins and Handbook. Any other form of draw endorsement MUST be approved by a STGC 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, and unless issuance of the endorsement is approved by an Underwriter.
If you have questions relating to this bulletin or any of the referenced bulletins, please contact Stewart Legal Services or your local underwriting personnel
For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.