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The Title Tip of the Week this week explains what mechanics lien
coverage means and why you want it when purchasing or making loans
on new construction. Mechanics Lien Coverage on New Construction The owners policy of title insurance is subject to certain
exceptions -- one of those being unrecorded mechanics liens. Why
do we care about unrecorded mechanics liens at the time of
closing? Doesn't the recording of my deed or mortgage before
a mechanics lien is filed put me in a superior position to that lien
holder? Not necessarily! A mechanics lien can be valid against
third parties (ie. those not in privity of contract with the lien holder),
and trump the interest of third parties, if filed within four (4) months of
the work completion date. In many cases the work in new construction is
completed just days before closing, giving the general contractor or
subcontractors plenty of time to file liens affecting the interest of the new
buyer or lender. For this reason, a purchaser of new construction
will want to make sure that any title policy issued will not be subject to
possible unrecorded mechanics liens. In order to grant extended coverage, waiving the general
exception for mechanics liens the title company will require copies of
various documents: (1) General Conractor's Statement - Section 5 of
the Mechanics Lien Act imposes a duty on the general contractor to provide
the owner with a statement of all parties performing work on the land or
supplying materials to the land. This statement, called a general
contractor's statement, is essentially a listing of all contracts the general
contractor has made with his subcontractors. (2) Owner's Statement - This is a statement listing
all contracts the owner made with third parties. This will often just
list the contract he or she made with the general contractor, though
occassionally there will be more. (3) Lien Waivers - The title company will want final
lien waivers from all parties listed on these two statements. The lien
waiver is a contractor's acknowledgement of payment and a release of any
potential mechanics lien rights for the materials or services they provided. The title company will review the provided materials and when
satisfied that it has lien waivers from all the proper parties, it will
approve the issuance of extended coverage over unrecorded mechanics
liens. The additional coverage comes at an additional price, and most
title companies will also charge a fee for the examination of the lien waiver
package. The added cost for a title company's examination of the lien
waiver package, along with the cost to the general contractor or owner for
the time spent tracking down the lien waivers is, in many cases, more costly
than engaging the title company to disburse on the construction loan from the
beginning. When Benchmark Title provides construction disbursing services,
the fee for examining the lien waiver package is eliminated because our
construction escrow agents collect all lien waivers in the process of
disbursing. But the greatest benefit of Benchmark handling the
disbursement of the construction loan is the protection provided to the
owner/borrower and lender against fraud by the general or
subcontractors. With each request for payment to the contractors
Benchmark sends and inspector to visit the property and verify the items for
which they are requesting payment have actually been delivered or
completed. Additionally Benchmark performs an update to the title
search to verify that no judgments or liens have gone on record before
disbursing any funds. Any questions can be directed to Benchmark Title at
618-239-3750. Please feel free to call or email:
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clients a free CD at closing containing copies of their closing documents. Give me my policy! Did you know that
lenders and home buyers now receive their title policies at the closing
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homeowners will want to hear about our fantastically low new refinance rates.
Call today for a quote! Why wait? You can place your
next title order now by clicking here. Karen Rachels,
Construction Escrow Officer for Benchmark Title, began her career as a teller
for a local bank thirty years ago. She worked her way into the mortgage
department as a processor and loan closer, spending eleven years at the
bank. Karen then spent the next twelve years with a mortgage
banker where she worked as a processor, loan closer and assistant office
supervisor at branches in St. Louis, MO and Columbia, IL. She joined
Benchmark Title as a construction escrow officer in November 2003.
Karen describes her position as working "with the Owners, General
Contractors and Subcontractors from the beginning of construction,
monitoring, and evaluating to see that the draw requests are processed
in an accurate and timely manner to the conclusion of
construction." Karen lives in Columbia with her husband and has
two children and five grandchildren. She can be reached at 618-239-3750
or by email at krachels@benchmarktitle.net.
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