Items 7(a) and (b) of the ALTA loan policy jacket insure against loss of damage sustained or incurred by the insured by reason of “lack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material a) arising from an improvement or work related to the land which is contracted for or commenced prior to the date of policy; or b) arising from an improvement or work related to the land which is contracted for or commenced subsequent to the date of policy and which is financed in whole or in part by the proceeds of the indebtedness secured by the insured mortgage which at date of policy the insured has advanced or is obligated to advance.”
With respect to mechanics’ (labor/service providers) and materialmen’s (suppliers of materials) liens, Schedule B of all title policies should contain an exception for:
“any lien or right to lien for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records,”
and such exception should not be deleted unless it can be verified that:
• No work has been performed on the property whatsoever.
• The statutory period of time for filing a lien has elapsed since the last work was performed.
• That pending construction will not commence until the insured mortgage has been recorded.
In cases of recently completed work where the statutory lien period has not expired, applicable releases, satisfactions or lien waivers must be obtained from all applicable parties including contractors, subcontractors, labor/service providers, and suppliers of materials. Also, proper and satisfactory indemnity agreements for unrecorded liens must be obtained.
In some states, mechanics’ liens and materialmen’s liens will, upon recording, revert back for priority purposes to the date of commencement of work on the project or filing of a notice of commencement; therefore, it is essential that the insured mortgage be recorded prior to such notice and that construction does not commence until such notice is recorded in accordance with statutory provisions. As a consequence of the “relation back” aspect of mechanics’ liens, it is essential to comply with state law concerning priority when providing coverage against mechanic’s liens. If a policy will be issued without exception to unrecorded mechanics’ liens, consult your Agents National Title underwriting counsel for any special requirements which must be made to avoid potential losses from mechanics’ liens.