Bulletin: MI2009009

Dear Associates:      

In order to minimize mechanic's lien losses, please adhere to the following procedures and utilize the following requirements and exceptions when issuing loan policies on any new construction.  The following must be submitted to you for your review: 

• Contractor sworn statements and waivers for all construction loan draws.
  
  
• Indemnifications from both the Owner and the Contractor in the following form: STG Indemnity Agreeement 1.
  
  
• NOTE: In the event that work has begun prior to closing, a requirement for submission of a sworn statement and waivers should be reflected on the commitment and the contractor must submit evidence of satisfactory payment to all trades at time of closing.
  
  
• While it is acceptable to insure on a "draw behind' or "lag" basis on all draws except the final disbursement, you must secure waivers for the final disbursement from all trades shown on the sworn statement/notices of furnishing submitted to the Agent/office. 

Waivers must be periodically checked with the trades to verify accuracy of signatures, dates and amounts throughout construction. 

In addition to the above, authorization of your local underwriting counsel or Stewart Legal Services is required on all loan policies.   Such authorization may require submission of the following:

• Audited financial statements from all Indemnitors.
  
  
• Construction documentation such as copies of the construction contract and projected cost/disbursement breakdown.
  
  
• Additional requirements which maybe imposed after review of the above. 

The Company neither approves nor authorizes deviation from this procedure for any builder client. 

In the event that any lien appears, the Company shall require that the owner secure the statutory penal bond or provide a secured indemnity in an amount of 1 ½ times the amount of the lien.   

In the event that multiple liens are recorded, the Company shall require that:

• The owner secure the statutory penal bond or provide a secured indemnity in an amount of 1 ½ times the amount of the liens.
  
  
• The Agent or office discontinue insuring on a draw behind basis and make direct disbursements to trades in exchange for waivers for each draw.
  
  
• No monies are to be disbursed to the general contractor except for work or materials supplied by the general contractor as a line item on the sworn statement.
  
  
• All funds identified on the sworn statement for general contractor "profit and overhead" be retained and disbursed on the final draw, adequate loan funds permitting. 

Title Commitment Requirements/Exceptions 

Follow these guidelines when issuing a loan policy on new construction. 

Commitment 

1. Include the following two requirements in Schedule B, Section I: 
   
   For purposes of the loan policy to be issued, record a Notice of Commencement relative to construction on the subject property.
   
   For purposes of the loan policy to be issued, submit evidence satisfactory to the Company that the Designee identified in the aforementioned Notice of Commencement will submit to the Company all notices of furnishing received by said Designee.  

2. Show the following pending disbursement clause exception in Schedule B, Section II:
   
   Pending disbursement of the full proceeds of the loan secured by the Mortgage in Schedule A, this Policy insures only to the extent of $0.00 being the aggregate of the amount actually disbursed at the date hereof under the terms of the mortgage set forth in Schedule A.  Any disbursement made subsequent to the date hereof shall be insured only with the written approval of the Company.   Such approval shall, as of the extended Date of Policy, have the effect of insuring such disbursements as a valid lien prior to any liens or other matters evidenced of record, except such as may be included in Schedule B, Part I, and prior to any unrecorded construction liens arising from non-payment of bills covered in the improvements set forth in the sworn statements and documents evidencing work progress submitted to the Company in connection with such disbursements, and for which funds were actually advanced. 

This policy does not insure against construction liens for labor or material furnished subsequent to the last extended Date of Policy, or construction liens for labor and material for which funds were not actually advanced for payment, nor does this policy guarantee completion of the improvements in progress, or their compliance with plans and specifications.  The Company does not insure against liens for labor performed and materials furnished after Date of Policy. 

Policy 

1. Show the same pending disbursement clause exception as shown above in the policy in Schedule B, Part I.
    
2. Delete the standard exception for "construction liens not of record."
   
   [Note: $0.00 should be hard coded into the exception on both the commitment and policy.  Do not use a monetary amount in the pending disbursement clause to endorse the commitment or policy but rather use a Construction Loan Disbursement Endorsement to update title and increase the coverage under the policy including any disbursements made at closing.] 

Construction Loan Endorsement 

The attached Construction Loan Disbursement Endorsement should be used to insure all disbursements of the loan proceeds made by the lender commensurate with construction.  The blank fields should be completed as follows:

• Additional exceptions for Schedule B matters that have arisen since date of policy, as amended;
• The amount of the current disbursement;
• The aggregate amount of disbursements made to date;
• The date of the Endorsement. [Note: the date of endorsement should be, preferably, the date to which we are posted with the county.] 

This Bulletin relates solely to the State of Michigan.

If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.    

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