Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 2, 1992 TAG: 9202020159
SECTION: VIRGINIA PAGE: B9 EDITION: NEW RIVER VALLEY
SOURCE: MARGARET EDDS STAFF WRITER
DATELINE: LENGTH: Medium
LIENS MAY CURB HOME BUILDING
George and JoAnne Nellos of Hampton were hit last week by the first surge of a tidal wave that, industry analysts say, threatens to engulf Virginia home builders and home buyers.The Nellos, who are trying to build a $120,000 home, were told by a First Virginia Bank loan officer that financing is unavailable.
The holdup is a complex matter that threatens to dry up home construction loans and force builders to leave new houses vacant for 90 days:
Title insurance companies are backing out of covering mechanics liens.
In cases of new construction, title companies guarantee that claims - liens - against a builder by subcontractors or suppliers will be satisfied. If those plumbers, plasterers, carpet layers, and others are not paid by the builder, the title insurers are responsible.
In some states, including Maryland, title companies are responsible only for liens filed before the sale of property. But in Virginia and a half-dozen other states, the law allows subcontractors to file claims up to 90 days after their work is finished, even if the property already has been sold.
The result, title insurance companies claim, has been major losses exacerbated by the recession.
"With the downturn of the economy, it's been almost impossible to protect ourselves against mechanics lien losses in Virginia," said Gary Cortellessa, vice president and mid-Atlantic area manager for Chicago Title Insurance Co. His firm withdrew Friday from covering mechanics liens in Virginia; last year, 80 percent of the dollars it paid on claims in Virginia were for mechanics liens, Cortelles said.
Chicago Title joined three other major title companies that have announced in recent weeks that they will no longer cover mechanics liens: Lawyers Title, First American Title, and Commonwealth Land Title. Combined, the four account for at least half of the policies issued in Virginia, industry analysts estimate.
There is wide speculation that others among the 22 title companies licensed in Virginia also will leave the market if a new lien law is not worked out before this year's General Assembly adjourns.
That, bankers and home builders say, will leave money for both residential and commercial construction available only to builders who can qualify for performance bonds. The price of such bonds would likely add $1,000 or more to the cost of a $100,000 house, banking officials estimate. Less financially secure builders could be left without funds.
Banks also probably would not lend money to home buyers until the 90-day limit for filing mechanics liens had passed, bank officers said.