As another blog has noted, “contractors, subcontractors, owners, lenders, and title companies often become intertwined when a party seeks to purchase title insurance coverage for mechanic’s liens.” While many title insurance companies are willing to insure against some mechanics liens, most will insert a general exception for unfiled liens. As construction and contract negotiations continue however, title insurance companies are often willing to delete this exception to unfiled liens if certain conditions are met, such as an affidavit being filed stating that no work has been completed within the statutory time limitations for filing a lien. (For example: If a state’s law mandates that all liens must be filed within 90 days of last furnishing labor or materials, a title insurance company will delete the lien exception if the seller states that no labor or materials have been furnished within the last 90 days). While removing this exception in Ohio was done at no charge in the past, a new law adds fees to deleting a lien exception provision from a title insurance policy.
Ohio Adds New Fees to Remove Lien Exception Provisions
On May 1, 2013, new charges implemented by the Ohio Department of Insurance went into effect that will significantly raise costs to remove the standard mechanic’s lien exception from title insurance policies. What was once a a common (free) practice became an expensive endeavor overnight.
The new regulations essentially cover two scenarios:
- Where work has already begun on the property and there is a “risk of loss of priority to a mechanics lien claimant,” it will now cost 40% of the base title insurance premium, with a minimum of $500, to remove a mechanics lien exception.
- Where work has already begun on the property and there is not a known risk of loss of priority to a mechanics lien claimant, it will still cost 10% of the base premium, with a minimum of $250, to remove the mechanics lien exception.
The Purpose of the New Law
The new charges added by the law seem to have one overriding purpose: To discourage real estate developers from beginning construction without first obtaining financing and a title insurance policy.
While the new charges — with a minimum of $500 and $250 (and a maximum of 40% of the title insurance premium), depending on the circumstances — are somewhere in between a “slap on the wrist” and unaffordable, they will certainly make developers think twice about diving head-first into a new construction project without first obtaining all the guarantees that the project will be seen through to completion. Since the law went into effect only a few weeks ago, we’ll have to wait for new statistics to emerge to state conclusively if the changes have had any real measurable effect on new construction projects.
Do the New Fees Affect Ohio Mechanics Lien Claimants?
Mechanics liens claimants still have every right they did before to place and later sue to foreclose on any mechanics lien. The only issue is whether a title insurance company would be required to pay. While the new laws may change the proportion of which party – the owner or insurer – pays, there seems to be no danger that mechanics liens filed in Ohio have any less of a chance of being paid off than they did before.