Construction liens (sometimes referred to as mechanic’s liens) can be a significant source of claims. This bulletin advises you of required procedures to insure new mortgages or modifications of existing mortgages after construction has started but before completion of all improvements including rehabilitation, renovation or tenant improvements and payment in full of all lienors. This bulletin incorporates requirements of prior Florida bulletins, as amended, as well as any national bulletins from Stewart Title Guaranty Company (STGC) applicable to insuring the risk of future (or currently) filed construction liens.
- Generally, STGC will require termination of any existing notice of commencement (NOC) and the new mortgage, or modification of the existing one, be recorded before any new NOC is filed. Unless the priority of the new mortgage or modification of an existing one is re-established over future liens, do not delete the general mechanic's liens exception from the Loan Policy without STGC underwriter approval.
- If work has commenced without a mortgage being filed, any existing NOC must be terminated, and the mortgage must be recorded before a new NOC is recorded and posted on the job site.
- Pursuant to Fla. Stat. §713.132 (3) through (5), work does not have to stop prior to terminating an NOC. An NOC may be terminated whether or not work ceases.
- By affidavit, satisfactory to STGC, the owner and general contractor must identify all lienors who have done work up to the date of the affidavit and the amount owed for that work.
- Thereafter all lienors must be paid in full for work and satisfactory lien waivers obtained from all lienors as of the date of recording the Notice of Termination of NOC. The lien waiver should contain an acknowledgement that the NOC is being terminated and is null and void.
- An indemnity from the owner is usually required in case there are lienors who were not identified in the above-referenced affidavit and as a result, were not paid and did not provide lien waivers. STGC must approve the form of the indemnity agreement and the indemnitor prior to closing.
- The policy should include the pending disbursement exception in Schedule B of the loan policy as described in paragraph D below.
- Approved Construction Loan Update Endorsements may be issued thereafter as required by the lender.
- Once the priority of the mortgage or modification of an existing mortgage is insured without an exception for mechanic’s liens, Revolving Credit and Future Advance Endorsements may be approved by STGC without mechanic's liens exceptions subject to normal STGC underwriting requirements.
A. The General Mechanic's Liens Exception
All commitments and policies contain among the General (or pre-printed) exceptions, the following: "Any lien, or right to a lien, for services, labor, equipment or material heretofore or hereafter furnished, imposed by law and not shown by the Public Records." This is referred to as the “mechanic’s liens exception.”
If construction has already commenced, do not delete the mechanic’s liens exception from either a Loan Policy or an Owner’s Policy without STGC underwriter approval.
B. Recording the Mortgage Before Recording Liens or a Notice of Commencement Establishes Its Priority Over Construction Liens
Pursuant to Fla.Stat. § 713.13, the priority of a mortgage and all disbursements of loan proceeds is established by recording the mortgage prior to recording any NOC and prior to the recording of any construction liens. Please note, a modification of a mortgage may cause a loss of priority. Do not insure modifications of mortgages, if it is recorded after an NOC without underwriter approval.
C. Requirements to Re-establish Priority of Mortgage or Modification of a Mortgage Recorded After the Recording of an NOC
Insuring a new mortgage or modification of an existing mortgage without the mechanic’s liens exception must be approved by an STGC underwriter. The underwriter may rely on the procedures set out in Fla.Stat.§713.132 as amended in 2023. The general requirements are below:
- The property owner and general contractor must each execute an affidavit identifying each of the persons who have provided labor, services or materials for the construction (also called a “Lienor” or “Lienors”) described in each NOC of record, including but not limited to Lienors who have served a Notice to Owner.
- Each Lienor must be paid in full for all work performed through the date of recording a Notice of Termination of the existing NOC and each Lienor must furnish a satisfactory Waiver and Release of Lien as of the date of recording of the Notice of Termination. The lien waivers should contain an acknowledgement that the existing NOC, as recorded in its correct book and page referenced in the lien waiver, is being terminated and is null and void.
- The owner must execute a Notice of Termination of NOC in compliance with Fla.Stat.§713.132., as amended, attesting: (a) before recording, a copy of the Notice of Termination was served on each Lienor who has a direct contract with the owner or has given a notice to owner; (b) the owner will serve a copy of the Notice of Termination on each Lienor who timely serves a notice to owner after recording the Notice of Termination; and (c) all Lienors have been paid in full or pro rata in accordance with Fla.Stat.§713.07(4).
- The Notice of Termination of NOC must then be served on each Lienor who has a direct contract with the owner or has given a notice to owner who has NOT executed a lien waiver.
- After steps 1-4 are completed, the Notice of Termination of NOC with the Final Contractor’s Affidavit attached must be recorded and may be recorded at the time of recording of the mortgage or modification.
- The new mortgage or mortgage modification must be recorded prior to any new NOC.
- The original NOC posted on the property should be removed and replaced by a copy of the recorded new NOC.
- STGC may require the owner and its principals, if applicable, indemnify STGC pursuant to an indemnity agreement in a form satisfactory to STGC.
Note: Approval to use this procedure and the forms for this procedure must be obtained from an STGC underwriter. The issuing office must retain said documents and approval in their file.
D. Pending Disbursement Clauses/Endorsements
A pending disbursement exception should be added to Schedule B of the commitment and policy unless all proceeds of the loan will be disbursed at closing. The requirement for a pending disbursement exception is applicable to all mortgages that will be disbursed in installments after closing whether it has priority or not.
The following form of Pending Disbursements Exception is acceptable:
“Liability under this policy is limited to $ _______ being the amount disbursed at Date of Policy but will increase as disbursements are made up to the Amount of Policy shown on Schedule A, hereof."
E. Insured Mortgage Does Not Have Priority and Cannot Regain Priority
If the insured mortgage does not have priority and cannot regain priority, STGC may consider using other pending disbursement clauses. There will be an extensive list of requirements to do so, and approval is not automatic. Please check with an STGC underwriter.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
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