The 2020 residential building season is now upon us! Building season brings construction loans and the title concerns that come with this type of financing. There can be concerns about the duplication of title services and costs that come along with it as well as insuring that the title to the real estate does not collect liens and other title issues prior to permanent financing. At Tallgrass Title, we are pleased to offer a “construction hold-open” type commitment to assist in the construction of residential property.
Tallgrass Title is proud to say that we can assist in this area!
Q: How is residential construction financed?
A: People constructing a home will typically borrow money in order to finance the construction with a “construction loan.” A construction loan is short term financing of real estate construction. Generally, a construction loan is followed by long term financing called an “End Loan” that is issued upon completion of improvements.
Q: Do both loans need title insurance?
A: Because of the nature of a construction loan, Lenders are often concerned about the length of time a commitment is valid from its issuance. Commonly, the commitment expires before the construction can be completed and before going to end loan. To solve this issue, lenders will pay for a full title policy on the construction loan and then again on the end-loan. The downside is that this creates duplicated costs.
How we can help:
Tallgrass Title is the only title insurance company in the area that offers a “Construction Hold-Open Commitment.” A Construction Hold Open Commitment provides periodic updates of the construction loan commitment every 120 days keeping the title coverage valid until the end loan is closed. Therefore, the costs are not duplicated between the construction loan and the end loan.
How to request:
Simply order a Construction Hold-Open Commitment from Tallgrass Title and we will perform the initial search and issue a Commitment for a $200 fee. The Construction Hold-Open Commitment is then valid for 120 days from the Commitment Date and can be renewed for an additional 120 days with an update. We will perform two updates as part of the initial fee. We will typically send out an update reminder when the expiration date is near. However, we do not perform updates without a request from the lender. After the second update, if further updates are required there will be an additional $50 fee per update. Construction Hold-opens can remain open indefinitely with the appropriate updates.
When the construction is complete and the mortgage is ready to go to End Loan or final policy we will do a final update at no additional charge. When the Final Mortgage is ready to be filed we collect the Premium and any Endorsement fees and record the New Mortgage. Our office must record the Mortgage and any other required documents with the Register of Deeds Office to ensure that the title is free and clear of any possible new liens. When the recorded documents come back from the county and all the requirements are met we will issue the Policy.
For those of you that use our Paperless Closer system, simply note that the loan is for new construction and type into the notes that you want a Construction Hold-Open Commitment. If you prefer to email the order, please note the request on your order form.
Please contact our office if you have any questions! We look forward to assisting you in the 2020 building season.