Posts Tagged ‘broken priority’

Explaining Why Title Insurance is Necessary to your Clients, by Inwest Title, a Utah Title Company

Friday, October 19th, 2012

Other types of insurance coverage focus on possible future events and charge an annual premium, such as flood insurance or hazard insurance. Title insurance protects against loss from hazards and defects already existing in the title and is purchased with a one-time premium.

Insuring a home’s title begins with a search of public land records affecting the property. The title agent or attorney working on behalf of the underwriter examines pertinent documents to determine whether the property is insurable. Those documents include deeds, wills, trusts, outstanding mortgages and judgments, property liens, highway or utility line easements, pending legal actions and notary acknowledgements.

When title problems are disclosed during the search process, they are corrected whenever possible to avoid future claims. According to surveys done by the American Land Title Association (ALTA), title problems consistently arise in one out of three real estate transactions (36%).

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For this and other information on Utah Title Companies, Utah Title & Escrow, or Title Insurance Quotes locate and contact your nearest Inwest Title office at


Detailed Information on New Mechanic’s Lien Law Changes (HB 260), by Inwest Title, a Utah Title Company

Friday, September 16th, 2011

A little over a month ago we published a blog article regarding “New Mechanic’s Lien Law Changes Will Keep Construction Loans Flowing in Utah, by Inwest Title, a Utah Title Company”.  Since that time we have been waiting for feedback from other industries about the changes that went into effect August 1, 2011.

Some opinions of the new bill are offered in the most recent edition of the Utah Bar® Journal article “Utah House Bill 260: Not your Father’s Mechanic’s Lien Law” (Or view a PDF version of the article, see pgs 16 – 19).   This article has an excellent explanation of the difficult issues faced and the innovative solutions created to solve the most pressing mechanic’s lien problems.   We encourage everyone to review this well crafted article for a better understanding of the new process and why it was created.

New Mechanics Lien Law Changes Will Keep Construction Loans Flowing in Utah, by Inwest Title, a Utah Title Company

Friday, July 29th, 2011

In the 2011 Utah Legislative Session one of the hottest topics was House Bill 260 Mechanics’ Lien Revisions.  This new bill was achieved through extensive negotiations between Legislators and groups representing Lenders, Title Insurers, Builders, Contractors, and Subcontractors, and as a result makes significant improvements to our existing laws when the changes go into effect August 1, 2011.

The Problem

Under the old system the simple act of dropping off lumber, clearing an access road, putting in a sewer system to obtain a building permit, or providing any visible work or materials triggered mechanics lien problems with a property.   This early start before the loan was in place meant all contractors would be in a superior position to the Construction Lender, putting that Lender’s security interest in the project in danger of being foreclosed.

While most of these early starts were unintended, once priority is broken it is irreparably broken, as there was no mechanism available under the law to restore priority.  Lenders have always looked to Title Insurers for insurance coverage to protect against this danger, however due to massive losses underwriting restrictions were severely tightened for broken priority and mechanic’s liens issues.  As a result there were a growing number of projects where Title Insurers were forced to decline to insure construction loans.  Without the protection of title insurance, Lenders were unwilling to loan, resulting in everyone suffering from projects being killed.

The Solution

The new changes provide a much needed correction and will help restore balance to the mechanics lien process.  For projects started after August 1, 2011, the new changes will allow for a Construction Loan to regain priority even if work had an early start.   This is accomplished by making mechanics’ liens relate back to and take effect as of the first preliminary notice filed in the State Construction Registry (SCR).  The new law allows any preliminary notices filed early to be withdrawn by obtaining the consent of contractors who have filed in the SCR by paying them in full for any work performed and then the contractors withdrawal of the preliminary notice.  This still ensures that the contractors are in control and have received payment before they relinquish priority.  Additionally, contractors will receive more information as the Lender will be required to file notice of the loan and borrower’s default on the loan in the SCR.

So what does this mean?

Title Insurers will insure, lenders will keep loaning, and contractors can keep being paid for their work.  A Win – Win situation all around!!



Broken Priority – What is it and how can borrowers get into trouble?, by Inwest Title a Utah Title Company

Thursday, December 30th, 2010

A client owns a building lot and now wants to build their dream home, but needs a construction loan first. The loan officer is anxious to help them realize that dream. Unfortunately, the title company has inspected the lot only to find that brush has been cleared, top soil has been removed, and there’s a port-a-potty on the property. The title company will not issue a lender’s policy because of “broken priority.”

Why do those things matter?

The lender wants to be in first lien position when lending the money to build the borrower’s dream home. Unfortunately, title underwriters might not insure the lender to be in a first lien position if there’s a chance that a mechanic’s lien could be filed against the property. Is the title underwriter worried about mechanic’s liens from the port-a-potty provider, guy who removed the top soil, and/or company that cleared the brush? Not necessarily, as each could be contacted to ensure they have been paid and to obtain lien releases.

The real problem comes from liens filed in the future by those providing services, work, materials, etc., after the loan is in place. Once you have broken priority, future liens, even though they were recorded after the loan was recorded, are now superior and they can foreclose on the property and wipe out the lender’s security interest.

Think of broken priority as a pre-existing health condition when applying for life insurance; if it is serious enough, you may not get coverage, or coverage may be severely limited.

This presents a real dilemma for many who own land and have partially developed and/or constructed on that land. In some instances, due to broken priority, the property will be uninsurable and so the lender most likely will refuse to loan on the property. In other instances the title underwriter may issue a policy that only provides coverage if lien releases from all parties providing services, work, materials, etc. are obtained. This can be a daunting task and some lenders will still refuse to loan on the property if they have to abide by additional requirements like obtaining lien releases.

The best solution is to educate clients to do absolutely nothing to their land prior to obtaining their loan and title insurance policy.