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If a a construction to permanent mortgage does not rollover because the borrowers/purchasers walk away and the secured builder/seller does not get paid as per the construction loan agreement what are the remedies of the builder against the Commitment and Construction Loan Agreement the lender actually signed with their borrowers securing the money deposited in full into the escrow account out of the permanent mortgage?

The purchasers surrendered the property which is still in the construction phase and the builder has not been paid out of the construction mortgage disbursments. The builders name and contract date are written in the Commitment and it clearly states during the construction phase the builder has the first lien? The builder had to sign the Disbursement Authorization Form along with other documents.

I guess I am confused at the builders remedies. The bank has not defaulted the borrowers/purchasers and it has been four months since they surrendered the property. Doesn't the builder get the remaining funds left in escrow because the obligations of the construction mortgage have not been completed and no reconveyance of the title has occurred.

Thanks,

Callie

jameshogg · Posted: Mon Mar 02, 2009 9:00 pm Post subject:

Hi Callie C,

The remedies and benefits of the builder will depend upon the clauses mentioned in the Commitment and Construction Loan Agreement. As you have mentioned that the agreement states that the builder has the first lien, then the builder will have the right to get his dues first. I would suggest you to contact an attorney and take his opinion regarding the whole issue and take steps accordingly.

Thanks

Jason1 · Posted: Tue Mar 03, 2009 1:06 am Post subject:

Typically the builder is paid in draws throughout the building process. The builder is paid after each phase is inspected to cover shortages and the next phase. If the construction is incomplete, I can't imagine the bank would instruct escrow to release further payments. It's odd that after 'surrendering' the property and being over 4 months delinquent that a Notice of Default hasn't been filed. I'm also not familiar with a construction lender foregoing first lien position (except in some hard money cases). Do the provisions of the contract state that the builder can foreclose if he/she is in first position? Did the builder extend credit to the borrower? Is the construction lender one of the large banks or a small local bank? The small local banks are usually easy to talk to as they will look for the best way to mitigate their losses.

Best regards,

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