What is Early Start Coverage?
Anyone who makes improvements to real property, or supplies the material necessary for said improvements, may file a mechanic’s lien against said real property. The priority, or lien position, for all mechanic’s liens for a given project is based on the date of first work for the project. Therefore, if the first work on a construction project occurs before the mortgage is recorded, all mechancis’ lien claimants will have priority over the mortgage. The effect of this for certain types of projects – for example, for construction of a new home – is to seriously compromise the lender’s collateral.
Early start protection is an extraordinary remedy designed to solve this problem. When a title company provides early start coverage, it provides a lender with an indemnification against loss due to loss of priority. However, because the title company takes on an extraordinary risk, it is often not appropriate.
For example, situations where a project can be in danger of being underfunded should construction costs increase, or situations where the borrowers do not have sufficient wherewithal to fund potential problems, cannot be salvaged with early start coverage.
When early start coverage is appropriate, the title company’s risk control comes from enhanced control over the deal — i.e., controlling disbursements; overseeing the collection of mechanic’s lien waivers, etc. – and from receiving indemnifications and/or guaranties from appropriate parties. Having the general contractor subordinate its mechanics’ lien rights is also helpful.
Title Mark, LLC is willing to consider offering Early Start coverage, but must secure approval from its underwriter, First American Title Insurance Company and Old Republic National Title Insurance Company to do so.