Contractors, subcontractors, owners, lenders and title companies often become intertwined when a party seeks to purchase title insurance coverage for mechanic’s liens. Since mechanic’s liens for most commercial projects may be recorded in Indiana up to 90 days after the completion of work, title insurance commitments and policies have a general exception for “unfiled mechanic’s or materialmen’s liens.” However, in many situations, a title company will agree to delete this exception and thereby insure the owner or lender against such risks.
If no work has been performed on a property in the last 90 days, there is little risk for the title insurer to delete the mechanic’s lien exception. Title companies will typically agree to delete the exception upon the execution of an appropriate vendor’s affidavit by the seller of the property. If the title insurance coverage is requested by a lender in a refinance transaction, a mortgagor’s affidavit will be obtained from the borrower/owner.
If work has been recently performed on the property, the title insurer is less likely to delete the mechanic’s lien exception. In such situations, the title insurer must carefully review all risks and determine its recovery options if a mechanic’s lien is later filed by a contractor or subcontractor.
To underwrite affirmative coverage against unfiled mechanic’s liens, the title insurer will need a copy of all construction contracts in effect for the project. The title insurer will also want financial information for the parties who will be requested to execute affidavits or indemnity agreements related to the coverage. The owner and its contractor may be required to execute such documents. In addition, if the property is owned by an entity such as a corporation, all individual owners or shareholders of that entity may be required to sign an indemnity or personal guaranty in favor of the title insurer.
The title insurer may require a contractor or subcontractor to execute lien waiver forms at the time that each payment is made on behalf of the owner. Contractors and subcontractors should carefully review such documents before agreeing to waive any lien rights, especially if future payments will be due from the owner.
Affirmative title insurance coverage against unfiled mechanic’s liens is beneficial and sometimes a “deal-breaker” issue from a lender’s perspective. Due to the number of parties affected by such coverage, the party requesting the coverage should discuss title insurance requirements as early as possible with the title company. It may take several days to a few weeks before all steps can be taken for this type of coverage.
Author: Jason P. Lueking (bio)
Phone: 317.464.1591
email: jlueking@bamberger.com
Tags: contractor work, insurance policies, Jason P. Lueking, mechanic's liens