Insurance against mechanic's liens is a major source of claims in our industry. Consequently, in order to provide insurance against mechanic's liens to owners (where customary) by deletion of the standard exception, you must verify compliance with the Company's underwriting guidelines for determining that all work is paid for or that none was done on the entire "project" (e.g., condominium regime). To furnish coverage to a lender, you must follow similar guidelines. However, if the loan relates to contemplated construction, the Company's guidelines are contingent upon analysis of state law (given the different rules of priority); in some states, the Company requires compliance with detailed procedures and/or special pending disbursement clauses; in some locations, the Company prefers to issue a construction loan policy (without endorsement) or use the standard mechanic's lien exception.
Inspection to Determine No Commencement
The Company requires a satisfactory inspection of the land to be made at, or immediately prior to recording the mortgage to be insured. If the inspection discloses any evidence of commencement of a work of improvement, either on-site or off-site, the coverage for mechanic’s lien insurance will be deleted from the Policy, unless all the necessary documentation for indemnification has been submitted to the Company (including audited financial statements, draw procedure, all loan documents, any required subordinations, and bonds) and the indemnification has been formally approved by the Company, prior to the recording of the mortgage.
Comment: In some states, it is possible to determine that a construction loan has priority if no work commenced prior to recording of the mortgage. If that fact is not confirmed, the Company requires detailed financial analysis.
Require Statutory Bond for Recorded Lien
The Company requires for its review a satisfactory statutory bond against that mechanic’s lien recorded ____________.
Comment: Many states establish a statutory procedure to bond around a lien claim and remove it as a lien. Even if state law is met, you must be cognizant of liens that may later be filed by other contractors or subcontractors.
Where Mechanics lien filed within the year
Mechanics Lien dated __/__/__, filed __/__/__; __(name)__, lienor, against __(name)__, owner, __(name)__, contractor; Amount $___________. This mechanics lien must be discharged of record in the County Clerk’s office.
Where mechanics lien has been extended by order
Mechanics Lien dated __/__/__, filed __/__/__; __(name)__, lienor, against __(name)__, owner, __(name)__, contractor; Amount $___________. Extended by order of Court dated __/__/__. This mechanics lien must be discharged of record in the County Clerk’s office.
Where mechanics lien is in the process of forec
Mechanics Lien dated __/__/__, filed __/__/__; __(name)__, lienor, against __(name)__, owner, __(name)__, contractor; Amount $___________. This lien is under foreclosure. This mechanics lien must be discharged of record in the County Clerk’s office.
Other liens continued while lien in foreclosure
The following mechanics liens were continued by virtue of the lienor being joined as parties defendant in the action set forth above. These liens can be disregarded upon the discontinuance and cancellation of the notice of pendency set forth under the exception above:
Note: You may add additional local requirements here. Please consult with our underwriting personnel in preparing appropriate provisions.
Specify Possible Mechanic’s Lien
Possible mechanic’s lien claim by _______________, in the amount of __________, as evidenced by document, recorded _____________.
Comment: An invoice, letter, other document or communication may evidence a claim not yet perfected. If so, you must except to the possible claim. This possible claim may be a red flag indicating other possible lien claims not yet filed.
Suit to Foreclose Mechanic’s Lien
Action to foreclose mechanic’s lien entitled __________________________ v ________________ under Index number ____________.
Judgment Ordering Foreclosure of Mechanic’s Lie
Judgment in favor of ______________ under Index Number __________ ordering foreclosure of mechanic’s lien described therein.
Note: You may add additional local exceptions here. Please consult with our underwriting personnel in preparing appropriate provisions.