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. To the extent that any state-specific bulletin prescribes more stringent requirements or procedures, those requirements and procedures shall govern.
(A). Do not delete the general mechanic’s liens exception from the Loan Policy during construction without underwriter approval.
(B). Include our Pending Disbursement Clause as described in paragraph B below if the Loan Policy is issued during construction.
(C). Other forms of coverage, including an acceptable Down Date Endorsement, are described in paragraph C below.
(D). Any Future Advance Endorsement must contain a mechanic’s liens exception as described in paragraph D 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. Pending Disbursement Clauses/Endorsements (See Exhibit 1)
You must use pending disbursement clause PDCX08, in all 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 may not modify this clause and an Underwriter must approve the clause. You also should determine that the mortgage complies with state law for future advances and for a construction loan.
PDCX08 does not require ongoing receipt and review of lien waivers, or documentation of payments, etc., as a condition of issuing a down date endorsement; however, as a condition of each disbursement, title must be continued and no liens must be of record.
C. Other Forms
(1) 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.
(2) Down Date Endorsement. During construction, upon satisfaction of the requirements stated in the pending disbursement clause, you may issue an endorsement dating down the Date of Policy and increasing the Amount of Insurance. You should use STG Construction Loan Endorsement 1 or a substantially similar endorsement. Any other form of Down Date must be approved by an underwriter.
D. 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 any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
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