Title Tenets Recap: Mechanics Liens and Repurposing of Mall Space and Retail
With news of major retailers scaling back their footprint and closing stores around the country, many retail property owners may jump to selling, refinancing or reimagining their real estate. Coresight Research predicts 25% of U.S. malls could close over the next three to five years. In any transaction, the incoming borrower or lender wants title insurance. In Stewart Title National Commercial Services’ latest Title Tenets webinar, senior underwriting counsel Shawn A. Elpel shares how title companies analyze coverage of mechanics liens in mall space and retail projects and how repurposing of these spaces could affect it.
“The takeaway is the mechanics lien issue should be on your radar,” said Elpel when noting how common they are in today’s retail space. “Lenders want a title insurance policy that says their mortgage or deed of trust is in first lien position.” If an issue comes up and foreclosure is necessary, they can foreclose on all parties involved.
Providing a mechanics lien (ML) for retail spaces is a big risk for title companies and is treated as such during underwriting. Repurposing or redevelopment of malls leaves many questions about coverage, specifically for a construction lender, incoming equity investor or mezzanine lenders.
While ALTA Loan policy changed in July 2022, covered risk 11 in the 2006 ALTA Loan policy provided coverage for the lack of priority of the lien of the Insured Mortgage upon the Title.
“Look at the project as a whole, what are the chances of liens showing up?” Shawn noted and shared examples of what Stewart Title Commercial Services would require. From loan term sheets and copies of financials for the borrower and guarantor to the project budget, title companies will work with the client to gather as much information as possible to consider the type of coverage it will provide on an ML.
Once information has been gathered, title companies will analyze the financial strength of the borrow and any loan guarantor, past projects, experience and more before diving into coverage that may be needed in case of a repurposed space. “Does the current use or what you’re going to change it to comply with the zoning endorsement or affect what we can provide?” reminds Elpel as he emphasized how many new projects on former retail-purposed real estate are popping up across the country.
While the logistics are complex, Stewart Title Commercial Services’ best-in-class underwriting team provides creative solutions for all parties involved.
Watch the on-demand recording to hear Shawn Elpel’s full review of mechanics liens and how Stewart Title National Commercial Services approaches coverage when they’re involved.
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