Construction Loans and Title Insurance in Michigan: What Custom Home Builders Need to Know

The framing is up. The roof is on. Your builder has submitted the draw request to release the next round of funds so the electrical and plumbing crews can start.

Then the title company calls.

A material supplier who delivered lumber three months ago filed a lien against the property because the subcontractor who ordered it never paid the invoice. The lien is valid, it is recorded against your land, and the lender will not release the next draw until it is resolved.

Work stops.

Your crews move to other jobs. Your construction timeline shifts by weeks. And the home you have been planning for two years is sitting unfinished while attorneys sort out a payment dispute you had nothing to do with.

This is not a worst-case scenario reserved for problem projects. It is one of the most common ways Michigan custom home builds get derailed mid-construction, and it almost always traces back to one gap in the process: the homeowner did not fully understand how title insurance works inside a construction loan before the build began.

Financing a custom home in Michigan is fundamentally different from buying an existing one. A construction loan releases funds in stages called draws, tied to completed milestones throughout the build.

At every one of those draws, title work is reviewed, lien exposure is assessed, and your lender requires protection before a single dollar moves.

Michigan's Construction Lien Act gives contractors, subcontractors, and material suppliers broad rights to file claims against your property if they are not paid, even if you paid your builder in full. That creates a layer of title risk that runs continuously from groundbreaking to final close.

Understanding how title insurance functions inside that process is not optional for Michigan homeowners building a custom home. It is one of the most important things you can do to protect your investment, your timeline, and the dream you are building toward.

In this post, we break down exactly how construction loans and title insurance work together in Michigan, what you are required to have, and how to protect yourself at every stage of the build.

How Construction Loans Work in Michigan

A construction loan is a short-term financing product designed specifically for building a new home.

Unlike a traditional mortgage that delivers funds in a single disbursement at closing, a Michigan construction loan releases money in a series of draws tied to completed construction milestones.

Foundation work, framing, roofing, mechanical systems, and interior finishing each represent a phase at which a draw can be requested.

Your lender typically requires an inspection to verify that each phase has been completed to standard before funds are released, and you pay interest only on the money drawn, not the full loan amount, while construction is underway.

Michigan construction loans typically span 12 to 24 months, after which the loan either converts to a permanent mortgage or is paid off through separate financing.

Most Michigan lenders require a credit score of at least 680, a 20 percent down payment, and detailed construction documentation including plans, a full budget, and a licensed builder's credentials before approving a construction loan.

Why Title Insurance Works Differently in a Construction Loan

In a standard home purchase, title insurance is a one-time process conducted before closing.

In a construction loan, title work is an ongoing process that runs the full length of the build.

The reason comes down to the nature of construction itself: an active build is a moving target, with new contractors, suppliers, and laborers acquiring potential legal rights against your property throughout the project.

Michigan's Construction Lien Act and the Risk It Creates

Michigan's Construction Lien Act gives contractors, subcontractors, material suppliers, and laborers the right to file a lien against your property if they are not paid for their contribution to the build.

Critically, Michigan law allows lien claimants to have priority over loan funds disbursed after the mortgage is recorded, which means a valid lien filed by a subcontractor can block the release of your next draw.

What makes this particularly challenging for homeowners is that these lien rights extend throughout the entire construction chain.

You can pay your general contractor in full and still face a valid lien from a subcontractor or supplier further down the chain who was never paid by the contractor you hired.

Managing lien exposure through sworn statements and lien waivers at each draw is not a formality in Michigan. It is the primary mechanism that keeps your build moving.

The Notice of Commencement and Why Timing Matters

Before construction begins on your Michigan custom home, a Notice of Commencement must be filed and recorded.

This document identifies your property, your general contractor, and the party designated to receive legal notices related to the project.

Subcontractors and material suppliers use the information in the Notice of Commencement to file their Notices of Furnishing, which preserve their lien rights.

One critical point for homeowners: construction should not begin before the Notice of Commencement is filed and recorded.

If work begins before the notice is in place, the timeline for lien rights becomes unclear and the title company's ability to track all potential claimants is compromised.

Getting this step right from the start establishes the clean foundation that every subsequent draw depends on.

Construction Loan Update Endorsements: Title Protection at Every Draw

At each draw disbursement, your lender requires a title update to confirm that no new liens or encumbrances have been filed against your property since the last disbursement.

In Michigan, these updates are commonly issued as Construction Loan Update Endorsements and are ordered through the title company handling your transaction.

Before each endorsement is issued, the title company reviews updated public records at the county Register of Deeds, examines the builder's sworn statement identifying all contractors and suppliers active on the project, and verifies that lien waivers have been collected from parties who have been paid.

If a lien has been filed and is not resolved, the endorsement is not issued and the draw is not released.

This process repeats at every draw throughout the build, which is why having a title company with deep experience in Michigan construction transactions is not just a preference but a practical necessity for keeping your project on schedule.

The Two Title Insurance Policies You Need When Building in Michigan

The Lender's Title Insurance Policy

Every Michigan construction lender requires a lender's title insurance policy as a condition of the loan.

This policy is issued at the time of the construction loan closing and protects the lender's financial interest in your property for the life of the loan.

It covers the lender against claims, liens, and title defects that could threaten their priority as a creditor, and it expands in coverage with each draw disbursement as funds are advanced against the property.

The borrower pays the premium for this policy as part of the construction loan closing costs.

It is important to understand that this policy protects the lender, not you.

If a title defect surfaces that affects your ownership rights rather than the lender's security interest, the lender's policy provides no coverage on your behalf.

The Owner's Title Insurance Policy

An owner's title insurance policy is the coverage that protects you as the homeowner.

In a construction context, it covers pre-existing encumbrances on the land, errors in the public record tied to the underlying parcel, and in some cases, construction lien claims that surface after the build is complete if proper lien waiver procedures were not followed during construction.

Unlike a standard resale purchase where the owner's policy is often paid by the seller, in a new construction transaction in Michigan the buyer typically pays for the owner's policy.

The premium is a one-time cost paid at closing, and coverage remains in effect for as long as you or your heirs hold an interest in the property.

For a homeowner who has invested months of planning and significant financial resources into a custom build, the owner's policy is one of the most cost-effective protections available.

Final Thoughts: Protect the Build From the Ground Up

Building a custom home in Michigan is one of the most meaningful financial and personal investments you will ever make.

The construction loan process, the draw schedule, the lien exposure created by Michigan's Construction Lien Act, and the title work that runs through every stage of the build are all working in the background of a project you are watching take shape in real time.

Understanding how they connect is what separates a smooth build from one that stalls at the worst possible moment.

The right title company does not just show up at closing.

They are a working partner through every draw, every sworn statement, and every lien waiver review from groundbreaking to the day you get your keys.

If you are preparing to finance a custom home build in Michigan and want a title team that understands construction transactions from the ground up, we are here to help.

Reach out today and let us walk you through what to expect before your first draw request is ever filed.