Bulletin: SLS2008003

Dear Associates:

Historically, downturns in the housing market give rise to an increase in mechanic's lien claims. Heightened awareness of this increased loss potential can minimize or eliminate mechanic's lien losses.

If any of the following elements are evident in a transaction, the issuing agent should closely scrutinize the transaction so that a potential mechanic's lien claim may be avoided:

• Information and knowledge of community economic conditions, and in particular the building industry, indicating monetary problems may exist;
• If known to you that a building contractor on any prior occasion has executed a false affidavit purportedly verifying a payment of all mechanics and materialmen who worked on the improvement. A subsequent affidavit would be unacceptable without additional verification and underwriter approval;
• Affidavits or other state form evidencing a claim of mechanic's lien are repeatedly recorded against the builder signifying slow payment practices, disputes, or cash flow problems;
• If known to you that the builder has a greater than usual inventory of unsold projects, or unfinished projects (usually residential homes);
• Known disputes exist between the builder and any subcontractor;
• Substantial cost overruns have occurred in the project to be insured;
• The general business reputation of the builder is unfavorable.

Please note that this bulletin is intended to provide a generalized caution regarding potential mechanic's lien claims. Each state has different laws and procedures; therefore, please review the mechanic's lien requirements in your state of business for additional information.

If you have any questions, or seek guidance with respect to a particular builder, please contact appropriate Stewart Underwriting Personnel.

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