ALTA 32-06 and ALTA 33-06 Endorsement Series -MLTA Handout · 2014-10-29 · ALTA 32-06 v. ALTA 32.1-06 ALTA 32-06: Issued with initial disbursement at time of closing • Charges

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ALTA 32-06 and ALTA 33-06 Endorsement Series

Presented byCindy Guanell

MLTA Spring Education SeminarNovember 13, 2014


TODAY’S PROGRAM

• Construction Lien priority in Montana

• Policy Coverage

• Breaking Down the ALTA 32 Series Forms and Coverage

• Risk and Underwriting Considerations


Construction Lien Priority in Montana

• Who Has a Right to Lien – 71-3-523 Montana Code

• Attachment of lien – 71-3 535 (6) and 71-3-522

• Priority of lien over mortgage- 71-3-542 Montana Code

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“POLICY COVERAGE”


ALTA 2006 Loan Policy Covered Risk No. 11(a)

11. “The lack of priority of the lien of the Insured Mortgage(a) as security for each and every advance of proceeds of the loan secured by the Insured Mortgage over any statutory lien for services, labor or material arising from construction of an improvement or work related to the Land when the improvement or work is either:


ALTA 2006 Loan Policy Covered Risk No. 11(a)

(i) contracted for or commenced on or before Date of Policy; or

(ii) contracted for, commenced or continued after Date of Policy if the construction is financed, in whole or in part, by proceeds of the loan secured by the Insured Mortgage that the Insured has advanced or is obligated on Date of Policy to advance;”

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ALTA 32 Series Forms Discussion

• Modifying 11(a)• Definitions• “Date of Coverage”• Endorsement ALTA 32-06 - Loss of Priority• Endorsement ALTA 32.1-06- Loss of Priority

Direct Payment• Endorsement ALTA 33-06 - Disbursement


ALTA 32 Series Forms DiscussionModifying 11(a)

• 1. Covered Risk 11(a) of this policy is deleted.

• 2. The insurance [for Construction Loan Advances] added by Section 3 of this endorsement is subject to the exclusions in Section 4 of this endorsement and the Exclusions from Coverage in the Policy, the provisions of the Conditions, and the exceptions contained in Schedule B. For the purposes of this endorsement and each subsequent Disbursement Endorsement:


ALTA 32 Series Forms DiscussionDefinitions

Paragraph 2 continued .• a. “Date of Coverage”, is

[________________________] [Date of Policy] unlessthe Company sets a different Date of Coverage by an ALTA 33-06 Disbursement Endorsement issued at the discretion of the Company.

• b. “Construction Loan Advance ,” shall mean an advance that constitutes Indebtedness made on or before Date of Coverage for the purpose of financing in whole or in part the construction of improvements on the Land.

• c. “Mechanic’s Lien ,” shall mean any statutory lien or claim of lien, affecting the Title, that arises from services provided, labor performed, or materials or equipment furnished.

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ALTA 32 Series Forms DiscussionDefinitions

3. The Company insures against loss or damage sustained by the Insured by reason of:

a. The invalidity or unenforceability of the lien of the Insured Mortgage as security for each Construction Loan Advance made on or before the Date of Coverage;

b. The lack of priority of the lien of the Insured Mortgage as security for each Construction Loan Advance made on or before the Date of Coverage, over any lien or encumbrance on the Title recorded in the Public Records and not shown in Schedule B; and


Endorsement 32-06(Construction Loan – Loss of Priority)Revised 02-3-11

Paragraph 3

c. The lack of priority of the lien of the Insured Mortgage as security for each Construction Loan Advance made on or before the Date of Coverage over any Mechanic’s Lien if notice of the Mechanic’s Lien is not filed or recorded in the Public Records, but only to the extent that the charges for the services, labor, materials or equipment for which the Mechanic’s Lien is claimed were designated for payment in the documents supporting a Construction Loan Advance disbursed by or on behalf of the Insured on or before Date of Coverage.

.


Endorsement 32.1-06(Construction Loan – Loss of Priority - Direct Paymen t)Revised 04-02-13

Paragraph 3

c. The lack of priority of the lien of the Insured Mortgage as security for each Construction Loan Advance made on or before the Date of Coverage over any Mechanic’s Lien if notice of the Mechanic’s Lien is not filed or recorded in the Public Records, but only to the extent that direct payment to the Mechanic’s Lien claimant for the charges for the services, labor, materials or equipment for which the Mechanic’s Lien is claimed has been made by the Company or by the Insured with the Company's written approval.

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ALTA 32-06 v. ALTA 32.1-06

ALTA 32-06: Issued with initial disbursement at time of closing • Charges were designated for payment in the

documents supporting a Construction Loan Advance

• Disbursed by or on behalf of the Insured on or before Date of Coverage.

• Direct payment is NOT made by the Company



ALTA 32.1-06: Issued with initial disbursement at time of closing • Direct payment to the Mechanic’s Lien claimant

IS made by the Company or by the Insured with the Company's written approval.



ALTA 33-06: Issued to the lender at time of subsequent disbursements subject to underwriting guidelines. • Brings forward the “Date of Coverage” • Amends Schedules A and B of the Loan Policy

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Risk and Underwriting Considerations

• Viability of Project• Construction Draw Review• Indemnification and Financial Strength

• Administrative Rules of Montana 6.6.2201-Liens, Encumbrances, and Standards of

Insurability


Administrative Rules of Montana 6.6.2201-Liens, Encumbrances, and Standards of

Insurability

Subsection 3(d) sets forth provisions to becomplied with in order to give construction liencoverage. (4) For purposes of ARM 6.6.2201(3) (d)• "sufficient indemnity” executed by a

responsible person


Risk and Underwriting Considerations

• (6) For purposes of ARM 6.6.2201(4)"responsible person" is any person, or

persons if they are jointly and severally liable, whose currently verified balance sheet upon examination is determined by the insurer to be sufficient for the purpose of the indemnity given. Verified copies of all statements shall be retained by the insurer or its agent.

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• Teamwork

o Your Underwriter is here to help you!

o Communication is KEY!

Conclusion

Documents

ALTA 32-06 and ALTA 33-06 Endorsement Series -MLTA Handout · 2014-10-29 · ALTA 32-06 v. ALTA 32.1-06 ALTA 32-06: Issued with initial disbursement at time of closing • Charges