In order to accommodate the increased interest in Construction, Construction-to-Perm, and Renovation/Rehabilitation loans, we are making some specific modifications to some of our standard security instruments to reflect certain state requirements for renovation or construction loan types. The updates that have been completed so far are as follows:
- ARS § 47-9334 allows a mortgage to be a construction mortgage as long as the recorded instrument so indicates. This will give priority to construction mortgages over fixtures as long as the mortgage is recorded before goods becomes fixtures. Also, § 47-9502 allows a security instrument for real property to satisfy the fixture financing statement requirements, as long as the security instrument indicates that it covers that type of collateral. Accordingly, we are adding the statement, “This instrument constitutes a “Construction Mortgage” pursuant to ARS § 47-9334 and as a fixture filing under ARS § 47-9502.” under the title of the Arizona Deed of Trust (Cx311). Even though it may not be necessary, this additional statement will print for loans that have Field 1063 “Loan Purpose” set to Construction or Construction-to-Perm, or when Field 29861 “Rehabilitation/Renovation Yes/No” is set to Yes.
- According to NCGSA § 25-9-502 a real property security instrument is sufficient as a financing statement for goods that are fixtures, as long as the Security instrument (1) indicates that it covers this type of collateral; (2) Provides a description of the real property; and (3) if the debtor does not have an interest of record in the real property, provides the name of the record owner. For loans that have Field 1063 “Loan Purpose” set to Construction or Construction-to-Perm, or when Field 29861 “Rehabilitation/Renovation Yes/No” is set to Yes, we are adding the statement, “COLLATERAL IS, OR INCLUDES, FIXTURES” beneath the title of North Carolina Deed of Trust (Cx336).
- According to SC Code § 36-9-334(h) a mortgage can secure an “obligation incurred for the construction of an improvement on land, including the acquisition cost of the land, if a recorded record of the mortgage so indicates.” This construction mortgage will have priority over fixture filings as long as the mortgage is recorded before the goods become fixtures. Also, SC Code § 36-9-502 allows a real property security instrument to act as a financing statement which will cover fixtures, as long as the security instrument indicates that it covers that type of collateral. Due to SC Code §§ 36-9-334 and 36-9-502, we have added the statement, “This Instrument constitutes a Construction Mortgage pursuant to SC Code § 36-9-334 and shall constitute a fixture filing under SC Code § 36-9-502.” under the title of the South Carolina Mortgage (Cx349). Even though it may not be necessary, this additional statement will print for loans that have Field 1063 “Loan Purpose” set to Construction or Construction-to-Perm, or when Field 29861 “Rehabilitation/Renovation Yes/No” is set to Yes.
Note that these are the first of several edits to our standard first lien security instruments that will be made in order to better represent construction and renovation loans. Similar edits will also be made to the FHA security instruments, and any other instruments that we determine should be modified for this purpose. As these edits are made to other instruments, this announcement will be updated with information for each update.
The first of these construction and renovation changes, as outlined above, will take effect on August 18, 2018. Other changes for this purpose will be made and pushed out as they are completed in the future. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
DR 268181, 268749, 268174
Update: Two more first lien security instruments are being modified to accommodate construction and rehabilitation loans:
- Cx347 PA Mortgage – According to Pa.C.S.A. § 8143 an “Open-end Mortgage” is a mortgage which secures advances, up to a maximum amount of indebtedness outstanding at any time state is in the mortgage, plus accrued and unpaid interest.” Such mortgage is required to be identified at the beginning as an “Open-end mortgage” and states clearly that it secures future advances. Accordingly, we have made the following language change to Cx347 that satisfy these requirements when the loan is a rehabilitation, construction, or renovation loan: “This open-end mortgage secures future advances and the proceeds are used to pay all or part of the cost of the erection, construction, alteration or repair of the Property.”
- Cx358 WI Mortgage – WSA § 706.11 defines a construction mortgage as a “mortgage that secures an obligation incurred for the construction of an improvement of land, including the acquisition cost of the land.” A mortgage is a construction mortgage if it “clearly states on the first page of the mortgage that it is a construction mortgage and the advance is made to enable completion of the contemplated improvement on the mortgaged premises.” Based on these provisions, we have changed the title of the mortgage to be “Construction Mortgage” and added the following to the first page of Cx358 : “Advances are made to enable completion of the contemplated improvement of the mortgaged premises.” These changes will print for rehabilitation/renovation and construction/construction to permanent loans.
These changes will take effect on October 13, 2018. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
DR 268798
Update: Our Virginia Deed of Trust, Cx354, and our West Virginia Deed of Trust, Cx359, are also being modified to accommodate construction and rehabilitation loans:
- According to VAC § 55-58.2, a credit line deed of trust is any instrument in which title to real property is conveyed, transferred, encumbered, or pledged to secure payment of money including advances, or other extensions of credit, to be made in the future. A credit line deed of trust is required to have on the front page in capital letter the words: “THIS IS A CREDIT LINE DEED OF TRUST” and shall specify the maximum aggregate amount of principal to be secured at any one time. This change will print for rehabilitation/renovation and construction/construction to permanent loans.
- Per WV Code § 38-1-14(b), a credit line deed of trust secures future advance as long as immediately below the caption at the top of the first page the credit line deed of trust has the words “This instrument secures an obligation that may increase and decrease from time to time.” A future advance can be an advance for taxes or insurance to protect lien priority. We are adding this statement under the title caption for rehabilitation/renovation and construction/construction to permanent loans.
These changes will take effect on November 6, 2018. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
DR 268798