New Approval Standards for Construction Escrow Disbursement

ATTN: ATG Members

ATG Regulation No. 5: Special Title Procedures for Construction Loan Escrows, Revised June 23, 2010 Provides:

An ATG member shall not establish or administer a construction loan escrow as a title insurance agent of ATG for purposes of disbursing mortgage proceeds, issuing interim title insurance coverage endorsements, or insuring against unrecorded mechanics' liens due to new construction, except in accordance with ATG-approved procedures and using forms prescribed or approved by ATG. In addition to the requirements of the preceding sentence, an ATG member shall not establish or administer a construction loan escrow unless the establishment or administration of the escrow has been specifically authorized by ATG in writing, or unless the ATG member has been approved in writing by ATG to establish and administer construction loan escrows. An ATG member who establishes or administers a construction loan escrow in violation of the requirements of this Section of this Regulation shall, in addition to other rights and remedies of ATG, be strictly liable to ATG for all loss or damage suffered by ATG resulting from the establishment or administration of the escrow by the ATG member, including, but not limited to, mechanics' lien claims resulting therefrom.

Therefore, if ATG has not specifically approved a member in writing to manage a construction escrow as an Escrow Agent, the ATG Agent shall be strictly liable for any loss or damage suffered by ATG for mechanics' lien claims resulting from that construction project.

ATG has established new review standards for underwriting approval of all title insurance policies that provide coverage for mechanics' liens in certain high risk situations where work has been done that enhances the value of the property. It mandates underwriter reviews based on policy amounts and it incorporates the use of a uniform risk assessment form to be submitted with the $3 million over the limit approval request when those transactions involve mechanics' lien risk.

ATG Form 4030: Mechanics' Lien Risk Assessment is designed to be a useful guide to underwriting mechanics' lien risk. In the underwriting process, all of the areas addressed in the form should be considered. Many areas, however, may not be applicable in the transaction we are asked to insure and ATG does not require you to complete areas of the form that are irrelevant to the transaction. We are asking you to consider whether each area is relevant and to complete the form accordingly.

In addition, if you are an approved construction escrow member and disbursing construction escrow proceeds out of your own account, you will need to pay ATG the sum of $50.00 for each draw disbursed. This fee is for ATG to assume the risk that the Construction Escrow disbursement is correct, that the construction escrow procedures have been complied with, and that the construction endorsement has been properly issued.


Posted on: Wed, 06/20/2012 - 8:51am