Guideline: ALTA Endorsement 32 (Construction Loan), 32.1 (Construction Loan - Direct Payment), and 32.2 (Construction Loan - Insured's Direct Payment)

Explanation:

Mechanic’s lien coverage during construction is an extra-hazardous risk.

ALTA Endorsements 32, 32.1 and 32.2 are designed for loan policies during construction in situations where the mortgage or deed of trust can never have priority over mechanic’s liens or where the mortgage or deed of trust has lost priority to mechanic’s liens (e.g., due to commencement of work prior to the recording of the mortgage or deed of trust). However, these endorsements may also be used in situations where the mortgage or deed of trust has priority over mechanic’s liens.

ALTA Endorsements 32, 32.1 and 32.2 are similar in that all three endorsements insure against loss or damage by reason of: (a) the invalidity or unenforceability of the lien of the Insured Mortgage as security for each Construction Loan Advance made on or before the Date of Coverage; (b) the lack of priority of the lien of the Insured Mortgage as security for each Construction Loan Advance made on or before the Date of Coverage, over any lien or encumbrance on the Title recorded in the Public Records and not shown in Schedule B; and (c) the lack of priority of the lien of the Insured Mortgage, as security for each Construction Loan Advance made on or before the Date of Coverage over certain Mechanic's Liens, if notice of the Mechanic's Lien is not filed or recorded in the Public Records.

Coverage under ALTA Endorsements 32, 32.1 and 32.2 is subject to the Exclusions from Coverage in the Policy, the provisions of the Conditions, and the exceptions contained in Schedule B. Matters excluded include, but are not limited to, failure to withhold funds as required by law, any other failure to comply with applicable law, failure to pay retainage, approval of extras resulting in additional costs, disputes over services, failure to provide adequate funds, failure to fully disburse or to disburse to lien claimants, failure to require lien waivers from lien claimants, etc.

ALTA Endorsements 32, 32.1 and 32.2 differ in that:

ALTA Endorsement 32 (Construction Loan):

ALTA 32 insures only to the extent that the charges for the services, labor, materials, or equipment for which the Mechanic's Lien is claimed were designated for payment in the documents supporting a Construction Loan Advance disbursed by or on behalf of the Insured on or before Date of Coverage.

ALTA 32-06 does not insure against loss or damage by reason of any mechanic's lien arising from services, labor, materials, or equipment:

A. furnished after Date of Coverage; or

B. not designated for payment in the documents supporting a Construction Loan Advance disbursed by or on behalf of the Insured on or before Date of Coverage

ALTA 32 does not require that the Company or its agent will be involved in disbursement of funds.

ALTA Endorsement 32.1 (Construction Loan - Direct Payment):

ALTA 32.1 insures only to the extent that direct payment to the Mechanic's Lien claimant for the charges for the services, labor, materials, or equipment for which the Mechanic’s Lien is claimed has been made by the Company or by the Insured with the Company's written approval.

ALTA 32.1 does not insure against loss or damage by reason of any mechanic's lien arising from services, labor, materials, or equipment:

A. furnished after Date of Coverage; or

B. to the extent that a Mechanic's Lien claimant was not directly paid by the Company or by the Insured with the Company's written approval.

ALTA 32.1 contemplates that the Company or its agent will be involved in the direct payment to specific mechanic’s lien claimants - either by making the payment or by approving it.

ALTA Endorsement 32.2 (Construction Loan - Insured's Direct Payment):

ALTA 32.2 insures only to the extent that direct payment to the Mechanic's Lien claimant for the charges for the services, labor, materials, or equipment for which the Mechanic’s Lien is claimed has been made by the Insured or on the Insured's behalf on or before Date of Coverage.

ALTA 32.2 does not insure against loss or damage by reason of any mechanic's lien arising from services, labor, materials, or equipment:

A. furnished after Date of Coverage; or

B. to the extent that the Mechanic’s Lien claimant was not directly paid by the Insured or on the Insured’s behalf.

ALTA 32.2 does not require that the Company or its agent will be involved in disbursement of funds.

Underwriting Requirements:

1. This endorsement should be used only for a loan policy prior to or during construction.

2. This endorsement requires underwriter approval.

3. Prior to issuing this endorsement, review and comply with the applicable “Mechanic’s Lien Coverage During Construction” bulletin applicable to your state describing the requirements for requesting mechanic’s lien coverage on a loan policy prior to or during construction. This may require, among other requirements, documenting the current status of construction or absence thereof, proof of payment of all work performed to date, and credit enhancements, e.g., indemnities and financial statements, acceptable to the Company, etc.

4. Relationship to STGC Pending Disbursement Clauses: In order to remove a general mechanic’s lien exception from a loan policy issued prior to and during construction, either of the following must appear in the policy: (a) an applicable STG Pending Disbursement Clause, inserted as an exception or added as an endorsement, or (b) an ALTA 32, 32.1 or 32.2 Construction Loan Endorsement, unless approved by an underwriter.

The ALTA 32, 32.1 and 32.2 Endorsements may be used instead of applicable STGC Pending Disbursement Clauses. The ALTA endorsements are not precisely comparable to the STGC Pending Disbursement Clauses. In general, you may use the following ALTA Construction Loan endorsements, where available and where approved by an underwriter, as follows:

A. You may generally use ALTA 32 (Construction Loan) in lieu of STGC PDCX06.

B. You may use generally either ALTA 32.1 (Construction Loan - Loss of Priority - Direct Payment) or ALTA 32.2 (Construction Loan - Insured’s Direct Payment) in lieu of STGC PDCX07.

C. You may generally use any ALTA 32, 32.1 or 32.2 Construction Loan Endorsement in lieu of STGC PDCX08, if requested.

5. You should not delete the general mechanic's liens exception for "Any lien, or right to a lien, for services, labor, materials, or equipment, heretofore or hereafter furnished, imposed by law and not shown by the Public Records” without underwriter approval.

6. The ALTA 32, 32.1 and 32.2 Construction Loan Endorsements are designed to be used solely with ALTA Endorsement 33 (Disbursement). If the policy contains an ALTA 32, 32.1 or 32.2 Construction Loan Endorsement, do not use any other form of date down endorsement without underwriter approval. You must comply with the applicable guidelines for issuance of the ALTA 33 Disbursement Endorsement. Among other requirements, issuance of the ALTA Endorsement 33 will require a continuation of title and proof of payment to mechanic’s lien claimants. Such proof is usually provided by paid bills, receipts, lien waivers, etc.  Refer to the Guidelines for the ALTA Endorsement 33 (Disbursement).

7. ALTA 32-06, 32.1-06, and 32.2-06 Construction Loan Endorsements are designed to be issued with a 2006 ALTA Loan Policy.  ALTA 32 (07-01-21), ALTA 32.1 (07-01-21), and ALTA 32.2 (07-01-21) Construction Loan Endorsements contain modifications to align the endorsements to the terms of the 2021 ALTA Loan Policy and are designed to be issued with the 2021 Loan Policy.  Where available, use the version of the endorsement designed for the applicable policy, unless approved by a Stewart Title Guaranty Company underwriter.  It is not necessary to indicate “-06” or the parenthetical (date) on the endorsement attached to the policy.

The underwriting guidelines contained herein have been provided for general reference. The facts, circumstances, and location of the subject property should be considered when determining the issuance of the requested form or endorsement. Please note that all of the forms and endorsements included in this system may not be available in all states. Accordingly, please contact the appropriate Stewart Title Guaranty Company underwriting personnel in order to determine availability.

Compliance with the underwriting guidelines contained herein in no way obligates Stewart Title Guaranty Company to issue any form or endorsement.