First and foremost, we do not insure over inchoate liens in Texas.  We can only insure what contained in the real property records of the county. Chapter 53 of the Texas Property Code deals with Mechanic’s, Contractor’s or Materialman’s Liens. 

In the event  there is on-going construction or construction recently completed on a property, we have to include an exception in both the owner and lender title policies under Procedural Rule P-8.  The promulgated language for these exceptions is set out below.

[Owner] Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of _________ County, Texas, prior to the date hereof.

Liability hereunder at the date hereof is limited to $                     . Liability shall increase as contemplated improvements are made, so that any loss payable hereunder shall be limited to said sum plus the amount actually expended by the Insured in improvements at the time the loss occurs. Any expenditures made for improvements, subsequent to the date of this policy, will be deemed made as of the date of this policy. In no event shall the liability of the Company hereunder exceed the face amount of this policy. Nothing contained in this paragraph shall be construed as limiting any exception or any printed provision of this policy.

[Lender] Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land.  However, the Company does insure the Insured against loss, if any sustained by the Insured under this Policy if such liens have been filed with the County Clerk of _______________Texas, prior to the date hereof.

Pending disbursement of the full proceeds of the loan secured by the lien instrument set forth under Schedule A hereof, this policy insures onto the extent of the amount actually disbursed, but increases as each disbursement is made in good faith and without knowledge of any defects in, or objections to, the title up to the face amount of the policy.  Nothing contained in this paragraph shall be construed as limiting any exception under Schedule B, or any printed provision of this policy.

The above exception for both the Loan Policy and Owner Policy may be removed from the policy at the conclusion of construction and expiration of the statutory lien period with a T-3 endorsement.  It should be noted as well that the statutory period may be reduced by the recording of an Affidavit of Completion of Construction under Section 53.106 of the Texas Property Code.  As there are several requirements that must be met in order to shorten the statutory lien period, it is incumbent that you correspond with Texas counsel to insure that the correct procedure has been followed.  It is imperative that you receive Full and Final Lien Waivers from all suppliers, sub-contractors and the general contractor.

What happens if a Claim of Lien is filed against the property?  The obvious first and best answer is for the owner or general contractor to pay the claimant and get a release of the lien in the statutory format.  This should then be recorded in the real property of records of the county where the land is located.  Absent an actual release from the lien claimant, the next best option is a statutory “bonding around” process that allows the Title Company to rely on the recorded bond as constituting full payment of all claims and liens.  The Texas Property Code 53.171-53.211 sets out a very specific process and procedure that needs to be followed leading to the recordation of the bond.

 *This is a very complex and high risk area of title.  I strongly encourage you to contact Texas counsel as soon as possible when dealing with the area of mechanic’s and materialman’s liens.  This is very general and broad-brush and is not intended to be an authoritative manifesto on the subject.