Successful builders of residential or commercial properties know that promptly handling issues during the construction process can prevent costly delays and legal complications down the road. In the same way, addressing title issues early is the key to helping builders avoid title defects and achieve seamless property transfers.
That’s where working with experienced title professionals and obtaining title insurance come in. Title companies do much more for builders than issue insurance policies. By acting as a trusted partner for builders, the title company contributes to a smooth and secure building process.
Let’s look at the ways in which title companies play a critical role in supporting builders.
Ensuring Security for New Construction Loans
Even before construction starts, title services safeguard new construction loans and prevent complications that can bring entire developments to a halt. Unlike transactions involving existing properties, new construction calls for more complex title work to ensure that the property is free from legal disputes, encumbrances, or claims that could jeopardize the project.
Title professionals help builders make informed decisions by providing them with crucial insights into potential risks and liabilities associated with properties. They do this through:
- Creation of a title commitment – A formal offer by a title insurer to issue a title insurance policy contingent upon specific conditions being met. This guarantees clear ownership and identifies any pre-existing issues with the property.
- Verification of property details – This ensures that the builder and lender have a clear understanding of the land’s legal standing.
- Issuance of title insurance policies – These protect lenders and builders against unforeseen ownership disputes or title defects.
- Handling of exceptions – Exceptions are specific conditions not covered by the title insurance policy, and can impact builders’ timelines and budgets. Title companies work with builders to resolve or mitigate these exceptions, including ownership and boundary disputes prior to closing.
- Assisting with construction liens – Title companies also assist in preventing or resolving construction liens, which can arise when subcontractors or suppliers are not paid for their work. Since these liens can delay closings, prevent ownership transfers, and even lead to litigation, title companies often provide construction lien coverage in their policies.
Managing Documentation for Transparency
Seasoned title companies are also familiar with common documents used in construction payment applications that aid in transparency when builders work with trade contractors. Among the documents that are used by builders and general contractors are:
- Sworn Statements – These list all contractors and suppliers that provide labor or materials for a project. Builders and general contractors use them to better track payments and thwart potential payment issues. When a sworn statement is signed, the parties swear that no one other than those listed need to be paid for their work on the project.
- Waivers – Similarly, lien waivers protect builders from disputes over unpaid subcontractor payments. These documents are signed by subcontractors and vendors at the time of requesting and/or receiving payment. When signing, they give up their right to file a construction lien in the future for their work that was completed on the project.
Facilitating Draws and Funds Distribution
Working in tandem with builders to manage cash flow and ensure timely payments to contractors, subcontractors, and suppliers is another way in which title companies protect construction investments. Here’s how:
- Draw management – An experienced title company can optimize a builder’s construction draw schedule, which links payments to specific stages of project completion. This ensures that funds are allocated efficiently for each stage of construction and avoids delays through prompt processing and disbursement.
- Compliance with lender requirements – Title professionals can verify that documentation aligns with lender conditions for seamless funding and help builders choose a financial partner who understands construction financing.
Providing Legal and Financial Safeguards
Last, but certainly not least, title companies can help ensure that builders are protected against unforeseen claims or liabilities that may arise. They do this by:
- Assisting with indemnity agreements – A construction indemnity agreement safeguards the indemnified party against any loss or damages associated with a third-party business agreement. The indemnified party protects their business while the indemnifier promises to hold harmless. This may prevent third-party lawsuits, insurance claims, and damages.
- Assuring accurate recordkeeping – This guarantees that all documentation is properly organized and accessible in the case of an audit or dispute.
Count on Vanguard Title to Pave the Way to a Successful Build Process
Selecting a title company with the proven experience to guide and support builders and developers throughout the build process is critical. Fortunately, Vanguard Title has the specialized knowledge and sophistication that are essential when closing new construction projects.
When a project is financed by a construction loan, Vanguard’s know-how is especially important regarding pending and future disbursements. Our educated title and closing staff are experts in handling post-closing disbursements, as well as underwriting for construction lien coverage so funding is on time and doesn’t delay the project.
Having successfully closed thousands of real estate transactions a year throughout Michigan and Florida, Vanguard is ready to partner with builders and set them up for success.