Bulletin: TX2010008

Dear Associates:

Mechanic's liens are a significant source of claims. This bulletin advises you of required procedures relating to mechanic's liens and mechanic's liens coverage only on Loan Policies during construction (including rehabilitation, renovation, and the like). It should be read in conjunction with other National and state-specific Bulletins relating to mechanic's liens.

Summary

(A).Do not delete the promulgated general mechanic's liens exception or the pending disbursements language in P-8 from the Loan Policy during construction

(B).Down Date Endorsements are described in paragraph B below.

C).Future Advance/Revolving Credit Endorsements are described in paragraphC below.

A. The Promulgated General Mechanic's Liens Exception

All commitments and policies should contain a general mechanic's liens exception as provided in P-8b1.

(1) When a Mortgagee Policy is issued prior to completion of improvements made under a mortgage given in whole, or in part, 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 (PDCX17 TX STGC):

"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."

Before or during construction, you may not delete the promulgated general mechanic's liens exception from a Loan Policy. If you are aware construction is occurring and you are asked to insure a mortgage (such as a purchase money mortgage) that is not financing construction, please call our Underwriters.

B. Down Date Endorsements

Down Date Endorsement. During construction, upon satisfaction of the requirements stated in the pending disbursement clause, you may issue an endorsement dating down the Date of Policy and increasing the Amount of Insurance. You must use endorsement instruction V of the Endorsement Instructions in the TDI Basic Manual:

Endorsement Instruction V.

When a Company is called upon to endorse a Mortgagee title Policy at the time of periodic construction advances in the same transaction, and upon compliance with Rule P-9.b.(4), said Company may issue the Endorsement by inserting the following applicable provisions therein:

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 of said policy and in any prior Endorsement to said policy,
   
   
2. Matters which would be shown by a correct survey and inspection of the premises subsequent to the date of said policy.
   
   
3. Any and all liens arising by reason of unpaid bills or claims for work performed or material furnished in connection with the improvements being placed upon the subject land. The Company does, however, insure 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 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 immediately preceding words "and except".),
   
   
4. The following additions to Schedule B of said policy: (Specify or delete this paragraph and include as exceptions only those additional matters which the Company has determined are superior to the lien described in Schedule A, Item 4, of said policy.),
   
   
5. The following matters which affect the title to the estate or interest in the land described or referred to in Schedule A of said policy, but Company insures the insured against loss, if any, sustained by the insured under the terms of the policy if such matters are not subordinate to the lien described in Schedule A, Item 4, of said policy: (Specify or delete this paragraph).

(b) The coverage under said policy as of the date hereof is $______________________

C. Future Advance/Revolving Credit Endorsements

While some states purport to provide priority only to "obligatory" future advances made by the lender as opposed to discretionary (non-obligatory) advances, Texas does not make this distinction.

You may issue a Future Advance/Revolving Credit Endorsement (T-35) on a Loan Policy insuring a construction loan mortgage without a mechanic's liens exception, because such coverage will be subject to the Exceptions, including the mechanic's liens exception described in Paragraph A.

If you have questions relating to this bulletin or any of the referenced bulletins, please contact Stewart Legal Services or your local underwriting personnel.

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