UPDATE John Rothermel Stewart Title Guaranty Company Sr VP, SW - - PowerPoint PPT Presentation
MECHANICS LIEN UPDATE John Rothermel Stewart Title Guaranty Company Sr VP, SW States Regional Underwriting Counsel, Associate Senior Underwriter January 20, 2011 TEXAS CONSTITUTION The Texas constitution recognizes that people will
The Texas constitution recognizes that
improve a homestead was recognized as one
For a loan secured by HS property, a
mandatory; recording before is strongly preferred
Names of owners/borrowers
must sign to encumber HS even if property is separate property of other spouse
Name of Contractor
Description of the Property
Scope of the work
should be more specific
Really can’t have change orders for extras
unless there is new stuff being done, and how do you know if the contract is too broad?
type, pool, etc. for new construction
What is this kind of property anyway?
MLC not required (but usually can’t hurt) Basics though don’t change
Once the negotiations as to the scope of
signed and recorded
this presents a major problem
HS: both are at risk Non-HS: priority is at risk
There is only one reasonably sure cure for
equipment, materials and workers off the job; file an affidavit of completion and do nothing more for more than 4 months (unless retainage is held by title company, then 30 days). Do a new contract for the remainder of the work and start the process over.
Wow, that is a lot of stuff and a lot of
Indeed. But that covers the bases for
Is there anything less than can be done? Call your favorite underwriter.
perhaps waive the completion affidavit. But pulling off the job for some period of time is always required.
work done when the MLC is too vague– what was done and what is left?
Residential construction: 15th day of 3rd
All other construction: 15th day of 4th
Prop code: 53.052
Original Contractor:
terminated
finished, settled or abandoned (same for retainage)
Subcontractor:
Specially fabricated material
normally be required at the job site
A contractor or supplier must file a claim
53.054)
doesn’t have to set forth specific items of work done or material furnished and can use abbreviations customarily used in the trade
The claimant must file the MLA and send
Can’t until suit is filed and we are
defending!
The beauty of retainage is that by
have much more than 10% profit in the job and waiting will just cause liens to be filed.
Affidavit of commencement: provides
Affidavit of completion: provides notice to
Residential construction: later of 1 year
Other projects: later of 2 years under
Long Series of cases beginning with
plumbing
plumbing, some electrical
Post foreclosure:
isn’t a lien against the property, a buyer might find it disconcerting to find that all interior doors, carpet, H/vac and appliances have been removed
Legislation dealing with identifying
Exact form of law will be decided in the
Balancing act required of competing
May include the list of what courts have
Bond to indemnify 53.172
in Texas
Bond to Pay Liens or Claims 53.201
Indemnify
These may be in the nature of a bond to
If asked to accept such a bond to remove
In Texas, all persons doing work or
That lien is created by the earlier of
And extends to all persons providing
Early site preparation or delivery of
priority over the deed of trust we insured
suppliers doesn’t help since they can’t waive the entire lien, only their right to participate in the lien
If the foundation company starts the
Why? Because they all share one lien and
Binders:
P-16. Mortgagee Title Policy Binder on Interim Construction Loan (Interim Binder)---The Mortgagee Title Policy Binder on Interim Construction Loan (Interim Binder) shall be used only with respect to interim construction loans in which it is contemplated in good faith that the Company issuing the Interim binder shall be asked to issue its Mortgagee Policy
Policies of Title Insurance or at the basic rate, on a permanent loan
when improvements are completed, but which permanent loan or loans may be made by a mortgagee or mortgagees other than the mortgagee named in the Interim binder. The use of such Interim Binder shall be limited solely to interim construction loans and pledges of the interim construction notes and liens wherein: (i) the obligor on the indebtedness is an original contractor who is also the record owner of the land upon which improvements are to be constructed; and, (ii) the security document for the indebtedness is not in the form of a Mechanic's Lien Contract.
for a policy.
(continued)
Construction loans may include sums advanced for acquisition of land and/or to take up, renew or satisfy prior existing liens on land upon which construction is to occur. Interim Binder shall not be issued on vacant lots or tracts, except in connection with the immediate construction of improvements thereon, nor shall such Interim Binder be issued after completion of improvements to which it relates, but this does not prohibit the issuance of Extensions after completion of improvements. In all cases not specifically enumerated in this rule, a Mortgagee Policy shall be used. The Company shall be required to show all subordinate liens in Schedule B-Part 2 of the Interim Binder, but a statement may be made therein that such lien(s) is subordinate. (Go to Rate Rule R-13 and EndorsementInstruction I)
R-18. Refinance of Construction Loan----
lien of a construction loan to be fully taken up, renewed, extended or satisfied by a new loan, the premium on the Mortgagee Policy insuring the lien of the new loan shall be at the currently promulgated minimum Basic Premium Rate;
lien of the new loan is in an amount in excess of the amount of the Mortgagee Policy insuring the lien of the construction loan, the premium shall be equal to the greater of
Rate, or
Premium Rate on the amount of the Mortgagee Policy insuring the lien of the new loan less the currently promulgated Basic Premium Rate on the amount of the Mortgagee Policy insuring the lien of the construction loan.
R-18. Refinance of Construction Loan---- C. On Mortgagee Policies issued on multiple
loans to fully take up , renew, and extend or satisfy a mortgage securing a construction loan insured by a single Mortgagee Policy, the new policies being in the amount of the new mortgages, the premium for the larger Mortgagee Policy shall be as set out in section A or B of this rule, using the total of the new mortgages as the amount on which to calculate the premium. The additional policy(ies) shall be issued at the minimum Basic Premium Rate.
R-20. Owner Policy After Construction Period-----When an Owner Policy has been issued in the manner provided in Rule P-8.A. with a face amount of $5,000,000 or more and the premium for said Owner Policy has been paid in full, upon completion of the improvements on the property covered thereby, the owner's acceptance thereof, and satisfactory evidence to the Company that all bills for labor and materials have been paid in full, an Owner Policy may be issued by the Company which issued the previously issued Owner Policy, at any time up to one year after such completion of improvements, covering the same land,
currently promulgated minimum policy Basic Premium Rate. Should the amount of the new Owner Policy exceed the amount of the previously issued Owner Policy, the premium for the new Owner Policy shall be at (i) the Basic Rate plus (ii) the currently promulgated minimum policy Basic Premium Rate less (iii) the currently promulgated premium for the previously issued Owner Policy, or in the event the previously issued Owner Policy was issued for a simultaneous issue rate under Rule R-5B, the currently promulgated premium for the Mortgagee Policy referred to in said Rule R-5B.
Rarely used because after the lien filing period the P-8 exceptions can be removed at no charge. Arguably could be provided to a new owner though.
Area and boundary or T-19 series when no
T-19 series of endorsements both assume the existence of improvements.
While not impossible to issue, the coverage
provided before any improvements are added is somewhat illusory.
P-50. Restrictions, Encroachments, Minerals Endorsement (T-19) and, Restrictions, Encroachments, Minerals Endorsement - Owner Policy (T-19.1),
Encroachments, Minerals Endorsement T-19 or T-19.1 may be insured only by the use of these endorsements, except that coverage regarding minerals may be insured by the use of the T-19.2 or T-19.3 endorsements as provided in P-50.1.
Minerals Endorsement (T-19) to a Loan Policy (T-2), if its underwriting requirements are met. The Company shall delete any insuring provision if it does not consider that risk acceptable.
Minerals Endorsement - Owner Policy (T-19.1) to an Owner Policy if its underwriting requirements are met. The Company shall delete any insuring provision if it does not consider that risk acceptable.
The Company insures against loss or damage sustained by the Insured by reason of:
following unless expressly excepted in Schedule B:
a. Present violations on the Land of any enforceable covenants, conditions, or restrictions, or any existing improvements on the Land that violate any building setback lines shown on a plat of subdivision recorded or filed in the Public Records. b. Any instrument referred to in Schedule B as containing covenants, conditions, or restrictions on the Land that, in addition, (i) establishes an easement on the Land, (ii) provides for an option to purchase, a right of first refusal,
(iii) provides a right or reentry, possibility of reverter, or right of forfeiture because of violations on the Land of any enforceable covenants, conditions, or restrictions.
the Land onto adjoining land, or any encroachment onto the Land of existing improvements located on adjoining land.
the Land onto that portion of the Land subject to any easement excepted in Schedule B.
subject to any easement excepted in Schedule B, which damage results from the exercise of the right to maintain the easement for the purpose for which it was granted or reserved.
shrubbery, or trees) located on the Land on or after Date of Policy resulting from the future exercise of any right existing at Date of Policy to use the surface of the Land for the extraction or development of minerals excepted from the description of the Land or excepted in Schedule
removal from any land adjoining the Land of any encroachment, other than fences, landscaping,
(3) When an Owner Policy is issued in the
Endorsement instruction VIII.USE ONLY IN CONNECTION WITH INCREASE IN COVERAGE SUBSEQUENT TO ISSUANCE OF FORM T-1 OWNER TITLE POLICY IN THE MANNER PROVIDED IN RULE P-8.a.
When a Company is called upon to endorse its Owner Title Policy to evidence increase in coverage thereunder, and upon compliance with Rule P-9.a.(3), said Company may issue the Endorsement by inserting the following applicable provisions therein: (a) Said Policy is hereby amended so that its coverage shall relate to the date of this Endorsement instead of the date of the Policy, subject to: 1.The exceptions shown in Schedule B
would be shown by a correct survey and inspection of the premises subsequent to the date of said Policy, 3.Any an all liens arising by reason
subject land. The Company does, however, insure the insured against loss, if any, sustained by the insured under the terms of the policy, if any such liens have been filed with the County Clerk of the County in which such property is located prior to the date of this Endorsement except those liens set forth in Schedule B of said Policy or in any prior Endorsement to said Policy, and except: (Specify or delete the words "and except" immediately preceding.), 4.The following additional to Schedule B of said Policy: (Specify or delete this paragraph) (b) The coverage under said Policy as of the date hereof is $____________.
issuing the Endorsement provided for in Form T- 3, Instruction V. Items (a) 1, 2 and 3 of the Endorsement may not be deleted.
Endorsement Instruction VII
When a Mortgagee Title Policy Binder on Interim Construction Loan is issued as provided in Procedural Rule P-16, and construction advances are being made subsequent to such issue, upon request and compliance with Rule R-11.c, the title insurance company which issued the Mortgagee Title Policy Binder on Interim Construction Loan may extend the effective date of the said Mortgagee Title Policy Binder on Interim Construction Loan by issuing the Endorsement provided for in Form T-3, Instruction
be deleted.
P-8. Issuance of Policies Prior to Completion of Improvements
(1) When an Owner Policy is issued in an amount to include the cost of immediately contemplated improvements, the Policy must contain the following exception in Schedule B: "Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of __________County, Texas, prior to the date hereof." AND THE FOLLOWING "LIABILITY" PARAGRAPH: "Liability hereunder at the date hereof is limited to $_________. Liability shall increase as contemplated improvements are made, so that any loss payable hereunder shall be limited to said sum plus the amount actually expended by the Insured in improvements at the time the loss occurs. Any expenditures made for improvements, subsequent to the date of this policy, will be deemed made as of the date of this policy. In no event shall the liability of the Company hereunder exceed the face amount of this policy. Nothing contained in this paragraph shall be construed as limiting any exception or any printed provision of this policy."
(1) When a Mortgagee Policy is issued prior to completion
for the cost of improvements, the policy must contain the following exception under Schedule B: "Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of __________County, Texas, prior to the date hereof." AND THE FOLLOWING "PENDING DISBURSEMENT" PARAGRAPH: "Pending disbursement of the full proceeds of the loan secured by the lien instrument set forth under Schedule A hereof, this policy insures only to the extent of the amount actually disbursed, but increases as each disbursement is made in good faith and without knowledge of any defects in, or objections to, the title up to the face amount of the policy. Nothing contained in this paragraph shall be construed as limiting any exception under Schedule B, or any printed provision of this policy."
Upon the completion of the improvements on said property, the owner's acceptance thereof, and satisfactory evidence to the Company that all bills for labor and materials have been paid in full, the "Liability" paragraph and the exception in Schedule B set out in "a(1)" of this rule may be eliminated from the policy by the issuance of the promulgated Endorsement form containing the applicable promulgated language covering said elimination. In addition to the above elimination, if a satisfactory survey made after the completion of improvements is furnished to the Company, survey coverage may be provided as set out in Rules R-16 and P-2, using the promulgated Endorsement form and containing the applicable promulgated language. In addition, if the Company's underwriting requirements have been met, the T-19.1 Endorsement may be issued or coverage affirmed as set out in Rules R-29 and P-50, using the promulgated Endorsement form and containing the applicable promulgated language
(2) Upon the completion of the improvements on said property, the owner's acceptance thereof, and satisfactory evidence to the Company that all bills for labor and materials have been paid in full, the exception plus the "Pending Disbursement" paragraph in "b(1)" above may be eliminated from the policy and mechanic's and materialmen's lien coverage amended by issuance of the promulgated Endorsement form containing the applicable promulgated language covering said elimination and amendment. In addition to the above elimination, if a satisfactory survey made after the completion of improvements is furnished to the Company, survey coverage may be provided as set out in Rules R-16 and P-2, using the promulgated Endorsement form and containing the applicable promulgated language. In addition, if the Company's underwriting requirements have been met, the T-19 Endorsement may be issued or coverage affirmed as set out in Rules R-29 and P-50, using the promulgated Endorsement form and containing the applicable promulgated language.
Form T-34: Increased Value) INCREASED VALUE ENDORSEMENT Issued By____________________ TITLE INSURANCE COMPANY This Endorsement is made a part of Owner Policy Number _____________, dated ____________. As of the date of this endorsement, the "Amount" on Schedule A is deleted and the following amount is substituted:$ _______________________. Under this endorsement, we do not cover title risks or insure against matters: a. created, suffered, assumed, or agreed to by you (the insured),
this endorsement unless they appear in the Public Records on the Policy Date. This endorsement does not change the Policy Date. The terms of the Policy apply to this endorsement. Endorsement Premium: $__________________________ Endorsement Date: _______________________, 20____ ATTEST:__________________________________________ __________________________Title Insurance Co. By: ______________________________________ President (Form T-34: Increased Value)
P-9b(2) When an insured under an Owner Policy shall have satisfied the Company as to the current value of the estate or interest insured by such Owner Policy, and shall have paid the premium provided for in Rule R-3.c, the Company shall attach to the said Owner Policy endorsement form T-34.
R-15. Owner Policy Endorsement
upon compliance with Rule P-9a(2), endorsement form T- 34 shall be attached to the Owner Policy upon payment of a premium for such endorsement which shall be the Basic Rate computed on the new amount less the premium paid for the Owner Policy and any form T-34 endorsements previously attached thereto, but in no event less than the then applicable minimum policy Basic Premium Rate.
according to Instruction VIII, as provided in Rule P-9a(3).