Which policy form is typically used for construction loan financing?

Which policy form is typically used for construction loan financing?

• A. Construction Loan Policy
• B. Commitment Title Insurance
• C. Lender's ALTA Policy
• D. ALTA Owner's Policy

Answer: (A)

Construction loan financing needs a policy that protects the lender’s security during the build and accounts for the unique risks that arise as draws are made and mechanics liens can appear. A Construction Loan Policy is designed exactly for that situation. It insures the lender’s lien and its priority throughout the construction period, including coverage related to funds disbursed in draws and the possibility of new liens arising before completion. This form is typically issued in lender’s coverage to protect the loan while construction is ongoing, and it can be coordinated with endorsements for partial releases as the project progresses. Commitment Title Insurance is the preliminary commitment issued before closing and not the ongoing protection during construction. A Lender’s ALTA Policy is a general lender policy, but the construction context calls for the specialized Construction Loan Policy. An ALTA Owner’s Policy protects the buyer/owner, not the lender.

Construction loan financing needs a policy that protects the lender’s security during the build and accounts for the unique risks that arise as draws are made and mechanics liens can appear. A Construction Loan Policy is designed exactly for that situation. It insures the lender’s lien and its priority throughout the construction period, including coverage related to funds disbursed in draws and the possibility of new liens arising before completion. This form is typically issued in lender’s coverage to protect the loan while construction is ongoing, and it can be coordinated with endorsements for partial releases as the project progresses.

Commitment Title Insurance is the preliminary commitment issued before closing and not the ongoing protection during construction. A Lender’s ALTA Policy is a general lender policy, but the construction context calls for the specialized Construction Loan Policy. An ALTA Owner’s Policy protects the buyer/owner, not the lender.