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Mechanic’s Lien Exceptions and New Premiums for Removal

Recent changes made by the Ohio Department of Insurance to title insurance rates can result in costly premiums for real estate developers who begin project construction prior to the completion of financing and the issuance of a loan or owner’s policy of title insurance.  In the past, title insurance companies would agree to delete the standard mechanic’s lien exception to an owner’s and/or  loan policy for no charge if the owner signed an indemnification agreement and provided lien waiver’s from contractors who had completed work on the project.

Effective May 1, 2013, however, Ohio title insurance agencies will now charge a substantial premium to remove the standard mechanic’s lien exception from both loan and owner’s policies of title insurance for any title order placed on or after that date.

For projects where work has already begun and thus there is a risk of loss of priority to a mechanic’s lien claimant, the premium for the removal of the standard mechanic’s lien exception for both owner’s and loan policies is now 40% of the base premium, with a minimum of $500.00.

If there is no known risk of loss of priority, there is still no charge to delete the standard mechanic’s lien exception from a loan policy.  However, for an owner’s policy, in order to remove the mechanic’s lien exception, the premium is now 10% of the base premium, with a minimum of $250.00.

As always, the pre-start of construction is still subject to strict underwriting requirements.  As a result, many title insurers reserve the right to deny the issuance of mechanic’s lien coverage subject to the underwriter’s approval.

Although it is generally a best practice for developers to wait until after issuance of the owner’s and/or loan policies before commencing construction on a project, sometimes certain circumstances may require or entice a developer to begin early. Lenders routinely require the deletion of the mechanic’s lien exception from the loan policy of title insurance.  Therefore, in these circumstances, developers will need to compare the cost of delaying construction commencement against the cost of the premiums which will be charged if the developer proceeds.

Posted on Wednesday, May 22nd, 2013 at 3:19 pm and filed under News and Press.

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