Word of the day, Mechanics Lien Coverage, and we are talking about Title Insurance.

I have probably lost more, not done more loans, because of this issue for this reason. So, when you are in the process of building or working on a house, you will have construction people helping you with your house. When a construction person, this is not in every state but most, when a construction person starts working on your house, they automatically have a lien on your house. 

So if you have a free clear house, and you have the cement guy come and put 100,000 of cement 50, 20 whatever it is in your house. The minute he starts to work in the house he actually is in first position. So if you have your house, he starts working on it on January 1st, 2018. He’s gotta lien on that house for any work that he does now and in the future. 

Let’s say he spends $25,000. I come along as a lender on March 1st, 2018. And let’s just say for the fun of it that I lend this person $25,000. If this guy does not get paid, he actually is in front of me, he can take this lien and he can sue me or sue the owner of the house and will actually be on the front of my loan. And he can foreclose if I don’t pay him off, then I lose my collateral. 

So, what we always do is when we get our title insurance that guarantees we are in first position, we get something that is called Mechanic Lien Coverage to go with this. So if you get a mechanic lien coverage, the title company will insure this guy has already been paid for the whole amount of money to make sure that he gets paid so that it guarantees you that you’re going to be in first position.

Again, this is most important, and is what you always want to remember. This goes for new construction, goes for remodeling, goes for any time you have a contract working on the property you’re lending money on. Mechanics Lien Coverage. ALWAYS get it.