The Bank can obtain a Mortgagee’s title policy at closing but in Texas the Bank cannot obtain title insurance coverage for mechanic’s lien claims arising out of construction. Bank’s often obtain a construction binder on residential loans.
The construction binder is a commitment to issue a mortgagee’s title policy when construction is complete. Any endorsements required by the permanent phase of the loan need to be obtained at the original loan closing.
Prior to each funding the Bank may obtain a down date endorsement from the title company in order to ascertain if any lien claims have been filed. However, the down-date is only as good as the date through which the title company as recorded information, which generally runs three to four weeks behind the current date. Even with a down date, the title company is not insuring against lien claims arising out of the construction, there is a specific exception in the construction binder or title policy excepting any coverage for liens claims during construction. The down-date at a cost of $50.00 per down-date, is nothing more than “informational only” and will not be current. Alternatively, at the time of each advance, the Bank may obtain an affidavit of bills paid to date from the contractor with lien waivers as a condition to payment [TPC § 53.085]
The “pending disbursements” clause is required to be inserted in a mortgage title insurance policy along with a “completion of improvements” exception which excepts from coverage all lien claims arising out of construction.
In the event the permanent phase is an ARM note, then an ARM endorsement to the title policy should be obtained when the original loan is closed and not at the time of the permanent financing.